BHP believes oil will remain an attractive commodity for “several decades” despite the swing to electric vehicles, and is keen on two key commodities that will benefit from continued electrification, copper and nickel.
However, the resources giant is not enthusiastic about lithium, a key ingredient in EV batteries due to its “abundant supply”, and has warned that “energy coal assets are challenged”.
During an investor session on Wednesday, BHP stressed it had “no appetite for growth in energy coal regardless of asset attractiveness”, adding that energy coal, or thermal coal, could be phased out as a source of power generation “potentially sooner than expected”.
BHP has a wide range of businesses including iron ore, oil, metallurgical coal, copper, thermal coal and nickel. Assessing what kind of prospects these commodities had, it said iron ore, oil, copper, nickel and met coal – a key ingredient in steel-making – all had a sound future.
While BHP still produces energy coal fellow miner Rio Tinto has sold out of coal, and Rio chairman Simon Thompson recently declared that coal was “not essential to human progress”.
BHP stressed in its investor presentation that its business risks associated with carbon-exposed commodities such as oil and coal were offset by upside to copper and nickel.
“We have options in copper and oil, but we need more. And we are interested in adding more nickel sulphide resource to our portfolio,” BHP’s chief financial officer Peter Beaven said.
Just last week BHP reaffirmed its commitment to nickel, an important ingredient in EV batteries, when it said it would keep its Nickel West operations.
Copper is another key ingredient in EV batteries and BHP has made no secret of its hopes to expand its copper portfolio. An average family-size EV requires about four times as much copper as its petrol engine counterpart.
In its investor presentation BHP said its Jansen potash project in Canada provided “differentiated growth potential”, with future demand for potash, a nutrient widely used in agrigulture, expected to be very strong.
“Our portfolio is in great shape today,” Mr Beaven said. “Through a series of well-timed divestments and the demerger of South32, we have simplified our business to create a focussed portfolio of attractive commodities and high quality assets.”
During a briefing with analysts Mr Beaven and other BHP leaders were quizzed about BHP’s lack of enthusiasm for lithium by Glyn Lawcock, from UBS.
“You’ve talked about electrification, decarbonistion, but you’ve been very quick to dismiss lithium…If you keep looking at the demand side doesn’t it keep getting bigger, not smaller. I mean I’m just curious, why dismiss it (lithium) so quickly?” Mr Lawcock asked.
In response Paul Perry, BHP vice president of strategy, said the miner saw lithium “potentially as an abundant commodity”, and that major lithium companies had signalled a “potential to at least treble” production.
“The available economic profit or rent that we see in that industry, at least for the next couple of decades just really isn’t there. Now that’s not to say that in the very long term that that market won’t change, and so we continue to monitor it, but at this stage the features of that market are not something that’s attractive to us,” he said.
Senior resources analyst with Morningstar, Mathew Hodge, said BHP’s stance on lithium was a “really interesting one, and I think it’s a bit counter to the mainstream view, which has been pretty positive on lithium. Maybe they’re arguing that it’s just a capital constrained market and there’s actually plenty of lithium out there.”
Mr Hodge said BHP’s portfolio was in good shape relative to its peers, and it’s geographic footprint was “pretty good as well”.
Shares in BHP rose 0.3 per cent on Wednesday, to close at $38.07, just above the ASX200’s 0.2 per cent gain.
Extracted from The Sydney Morning Herald