Monsters of Rock: OZ Minerals boss says ESG credentials will draw green premium for battery metals

OZ Minerals boss Andrew Cole says green premiums are coming for ESG compliant battery metals like nickel and copper
Traceability a key component of OZ’s search for a strategic partner at West Musgrave nickel-copper mine
Cole confident OZ can create value even if BHP declines to up its rejected $25 per share bid

One of Australia’s leading mining executives says a price differential will open up in future between green commodities and those that can’t prove their ESG credentials.

OZ Minerals (ASX:OZL) boss Andrew Cole says a decision to dole out a strategic minority stake in the copper, gold and soon to be nickel miner’s $1.7 billion West Musgrave nickel and copper mine will be heavily based on which partner can help provide traceability through the supply chain.

“We are setting this company up to produce clean, green, environmentally friendly commodities that are supported by traditional owners as partners in a very safe jurisdiction,” he said.

“So these are commodities that will be sought after in a world which is very rapidly changing and very rapidly demanding it, so these are commodities that we’re setting up to be able to put into a market like that.

“With copper concentrates, nickel concentrates, by selling these into a smelter it makes it harder for traceability through the system, because they generally get blended.

“So we are looking at opportunities to be able to provide traceability from the minerals in the ground through a value chain for the end customer.”

While other western battery metals producers have described ESG more as a ‘ticket to ride’, Cole believes a premium or tax will be opened up between those who can prove the provenance of their products and those who can’t.

“The partner that we are looking for is a strategic partner who can help build traceability of those commodities down the value chain, and then could leverage those commodities in their customer set as clean green products,” he said.

“Because I do believe and we do believe as a company that in the future there will be a structural pricing difference between clean green commodities and those that have not.

“Now whether that’s a price premium or a tax for those who are not doesn’t really make a difference, it will still be structurally different.”

A different nickel

A study is due this quarter on the construction at West Musgrave of a downstream nickel processing plant to produce a mixed hydroxide product for direct sales to customers, rather than through a smelter and refinery.

That is the process that would be used if BHP (ASX:BHP), which once owned West Musgrave, selling it for peanuts to junior Cassini Resources, would use if it got its hands on it now.

BHP was trying to flog its unloved and at the time unlovable nickel assets but was unable to find a buyer.

Eight years down the line and nickel’s role in EV batteries has made the Nickel West division it once let camp begrudgingly in its house a key part of its iron ore and coal dominated business.

An unsuccessful $8.4 billion bid for OZ Minerals at $25 a share in August was largely about the benefits of integrating OZ’s Carrapateena and Prominent Hill mines into its portfolio.

But the prospect of adding production to Nickel West through the now studied and approved West Musgrave nickel and copper mine was an added bonus.

OZ shares briefly dropped below BHP’s $25 offer price today after announcing production of 30,012t of copper and 56,334oz gold in the September quarter.

While copper guidance was maintained at 120,000-135,000t, gold production has been cut from 208,000-230,000oz to 203,000-220,000oz for 2022.

All in sustaining costs fell from 210 US cents a pound to 190.4 US cents, with guidance lifted from 160-180c to 175-195c.

BHP boss Mike Henry has been playing hard ball with the idea of lifting the OZ cash bid and giving the copper miner’s board and shareholders the payout they would need to sell up, referring to OZ as a nice to have not a must have on numerous occasions.

Cole has been just as stubborn on his end, telling analysts today he’s not worried about eroding the value of the company – which shot up over 30% on the day the BHP offer was revealed – if it becomes apparent to investors no deal will be reached.

“I think we’ve demonstrated the confidence (in OZ’s value) by rejecting the bid in the first place,” he said.

“We’re not assessing the value we create for our stakeholders on one day’s share price trading, we assess the value we’re creating over long term value.

“And that’s created through a number of channels that we believe that we can create … value above $25 a share over the medium to long term.

“And I think we’ve demonstrated that we’ve got the capability to do that and I think we definitely have a pipeline in order to do that.”

And… on the markets today

Pilbara Minerals (ASX:PLS) was the big large cap winner after making another record spodumene sale through its auction process, selling a 5000dmt cargo for a 6% equivalent price of US$8000/t.

Battery metals dominated the early trade – as you can read in our lunch time Ground Breakers column here – while the materials sector generally just 2.51% up.

Energy closed 0.74% higher on a bright day for the ASX 200, up 1.54%.

Among the mid-tiers graphite anode materials play Novonix (ASX:NVX) was the big winner, charging 33.5% on no news.

The company was the recipient of a major grant from the US Department of Energy announced last week.