for a fatal dam burst at one of BHP's iron ore mines in Brazil, whilst quietly trying to ensure that liabilities loaded on the group's Brazilian subsidiary are legally isolated from the parent company. Provisions linked to the disaster pushed BHP to a $6.4bn loss this week, the biggest in Australian history, forcing the board to slash the dividend for the first time since the group was founded.
     Mackenzie's biggest input has been spinning-off South32, a basket-case of BHP's unwanted assets. He framed the demerger as “liberating a company within a company”, allowing neglected assets to grow. Some see the new firm as a vehicle for the group's environmental liabilities, heaviest in aluminium and nickel, two of South32's key commodities.
     The company was loaded with $1.5bn of mine closure costs, 23 per cent of BHP's total, even though the cast-off assets only accounted for 9 per cent of the combined group's earnings. In BHP's first internal sketch of what the new company would look like, drafted by Goldman Sachs, the skew was even greater.
     Embarrassingly, South32 has outperformed BHP since the two decoupled. According to banking sources, private equity boss Mick Davis tabled a $9bn bid for South32, just before the demerger. Other sources say the move was blocked by pension funds behind Davis, who vetoed any investment in coal. Ultimately, Mackenzie paid $738m in banking fees to Goldman Sachs, who structured the spin-off instead.
     Analysts describe it as a case of shuffling deckchairs. “We thought it was a weak decision,” one analyst at a mining bank says. “They offloaded the decision. 'This isn't a problem we want, so we'll dump it on our shareholders.'” Mackenzie too seems undecided over whether he wants the assets or not. This week he told reporters that he has personally held onto his own shares in South32.

Turning the Screws

     In coking coal, BHP Billiton has led the industry in ratcheting down costs, pressurising rivals, who have successively buckled. US-based Peabody Energy, which moved into Australian coking coal in 2011, went under in April. Brazil's Vale has sold-off its Australian coal assets for prices as low as a dollar. Anglo American is also fleeing the business, selling all its coal mines under the pressure of the group's debt. New supply is “coming to an end, product by

product”, Mackenzie said this week.
     The decimation of prices has put big assets on the block. BHP is reportedly bidding for Anglo's Grosvenor coal mine in Queensland, a brand new underground mine with hefty annual capacity of 5m to 8m tonnes. The deal is expected to fetch $1.5bn, $200m below Grosvenor's construction cost. “While Grosvenor may not fit Anglo American’s strategic portfolio choices, its long term commercial attractiveness is beyond question,” according to Seamus French, Anglo's head of coal.
     Mackenzie may be bold enough to capitalise on the opportunities, but analysts believe he is locked in a prison of his own making. Many mining bosses “do not understand the economics of their own industry”, one analyst says. Pressurising costs in an oversupplied market only depresses prices further, making productivity “a fool's errand.” It is straightforward enough. “Yet somehow management always seem to believe that they are in some kind of prisoner's dilemma.”
     Mackenzie is “upbeat”, competitors say. Senior industry insiders point to Peter Beaven, BHP's chief financial officer, as a “clear succession candidate”. Beaven grew up in

Portugal, Mozambique and Zimbabwe, the son of a British diplomat. He went into investment banking, working on the deal that merged South Africa's Billiton with Australia's BHP, joining the combined group and going on to head its copper division in Santiago.
     Whilst Mike Henry spends his weekends playing the acoustic guitar, Beaven says his role precludes anything much but work. He has shifted BHP's thinking on its gas assets in the US. It has previously mobilised drill rigs whenever the futures market improves, but the tactic has failed, because competitors are watching the same prices. Instead, BHP has pulled back production, leaving product in the ground and leaving open an option for when the market is far higher.
     New leadership could tweak BHP's thinking, or at least its message. “It's all very well to talk to increased production and cost efficiencies,” one source in Australia says, “but investors are looking at their bank accounts. The institutional funds will be saying, you've just halved my dividend, and they'll have to tell their own clients, the safe bet's not as safe as we thought.”
     “There'll be a robust discussion. It'll take time to play out.”