BHP’s (ASX:BHP) shift away from fossil fuels and towards so-called ‘future facing commodities’ will hit its biggest milestone yet on Thursday when Woodside Petroleum (ASX:WPL) shareholders vote to confirm their company’s merger with BHP’s Petroleum division.

With its turn away from oil and gas as well as efforts to sell out of thermal coal over the past two years, BHP has put its faith in commodities it views as essential to the transition to green energy — copper, nickel and its famous iron ore division.

While some market watchers have been suggesting BHP is keen on a mega deal to boost its scale, particularly in the nickel and copper space, one key battery metal is a notable for its absence in BHP’s future plans – lithium.

The very metal the lithium-ion battery is named after has seen its price soar 10 times over for both downstream chemicals and raw material concentrates over the past 18 months as electric vehicle sales have hit consecutive records.

But new supply is slowly coming to market, and BHP’s Americas head Ragnar Udd last week suggested the big miner views the current hot lithium market as a potential bubble waiting to burst.

“We recognise that at the moment there’s short-term supply-demand conversations,” Udd was quoted as saying in an interview with Bloomberg. “How that plays out over the next 20 or 30 years, I don’t think it will last.”



Visionary or dinosaur?

Udd’s comments could reveal him in the fullness of time as a visionary with a Nostradamus-like insight into metals markets. Or a dinosaur unwilling to embrace the future of the industry.

It could, and most likely will be, somewhere in the middle.

Some commentators were scathing.

Others were more circumspect, noting BHP could always revisit the commodity down the line.

We are seeing something of a correction in lithium markets, although that has been overlain by the Covid situation in China which has stalled car production as well as the extraordinarily high price point of lithium chemicals and spodumene concentrate — at over US$5000/t Pilbara Minerals (ASX:PLS) boss Ken Brinsden estimates current spodumene prices would be the equivalent of a ~US$7000/oz gold price.

According to Fastmarkets, hydroxide prices finally joined carbonate prices in dropping from recent highs, while spodumene prices retreated last week for the first time since 2020, falling US$775/t in its last assessment to a still super-strong US$5250/t.

S&P Global expects lithium chemical prices will fall from current levels of US$60-70,000/t to US$25,000/t.

So is BHP right? Not necessarily. We’re seeing some weird things in commodity markets at the moment with China taking a breather amid its Covid lockdown.

Long term, S&P expects lithium deficits to expand from 2024, with virtually every analyst saying a major expansion of supply will be needed by 2030.


How are the majors exposed to battery metals?

Pretty much every major mining company views decarbonisation, ESG and battery metals as a growing theme they want to play. Official net zero targets for companies and governments are ironically expected to supercharge demand for metals used in lithium ion batteries, renewables and electrification infrastructure.

So how do five of the ASX’s biggest resources companies plan to play the battery metals theme?



The aforementioned BHP views its massive iron ore and hard coking coal businesses as important pillars of its ‘future-facing commodity’ strategy.

That’s on account of its bullish view that steel demand will significantly increase over the coming decades to produce steel for renewable energy and other infrastructure.

BHP thinks blast furnace steelmaking, which requires coke to reduce iron ore to crude steel, will remain the dominant technology for decades to come.

While it has thumbed its nose at the nascent lithium industry, BHP is a big believer in copper and nickel, two metals expected to face major deficits by 2030 driven by their use in EVs, renewables and in copper’s case the expansion of electrical transmission infrastructure.

BHP expects to produce up to 1.62 million tonnes of copper in 2021-22 (about 8% of global supply), a division which accounted for around 23% of EBITDA in the first half of FY22, second only to its iron ore division (60%).

It has been most acquisitive though in the nickel space, where almost all of the product from its Nickel West operations in WA are now sold to customers making EV batteries (including Elon Musk’s Tesla) rather than the traditional stainless steel market.

Nickel accounts for ~3% of BHP’s earnings. While that seems a drop in the ocean, the nickel business is an important pillar of BHP’s ESG strategy and green image for shareholders and the miner has shown a desire to grow.

BHP lost out to Andrew Forrest in a bidding war for Canadian explorer Noront Resources last year, its first attempt to acquire a listed company since its disastrous US shale acquisitions over a decade ago, but promptly put US$50 million in an initial investment into the Kabanga Nickel project in Tanzania, one of the world’s largest undeveloped nickel sulphide mine.


BHP (ASX:BHP) share price today:



Rio Tinto (ASX:RIO)

Unlike BHP, Rio Tinto is bullish on lithium.

It has faced some stumbling blocks though, with the Serbian Government cancelling the approval process for its Jadar lithium and boron mine in the Balkan nation this year amid community opposition against the proposed US$2.4 billion mine which promised to be Europe’s largest lithium producer from its planned opening in 2026.

Not to be deterred Rio paid US$825 million last year for the Rincon brine project in Argentina where it plans to test novel direct lithium extraction technologies to bring the massive development to market.

Rio’s push into lithium is significant in part because, having exited coal a few years ago, its earnings exposure to iron ore is far larger than BHP’s.

While Rio’s less diversified nature is one reason many large cap analysts prefer BHP over the Anglo-Australian miner, its lithium exposure is a point of difference. Rio also has large copper interests including a 50% share in the massive Escondida mine in Chile it shares with BHP, the Oyu Tolgoi mine in Mongolia and the controversial undeveloped Resolution Copper project in the USA, also a BHP JV.

Rio produces no nickel currently (its major non-iron ore businesses include copper, alumina and mineral sands) but does have a stake in the Tamarack JV with Talon Metals, a nickel deposit in Minnesota in the States which has been earmarked as a source of nickel for Tesla.


Rio Tinto (ASX:RIO) share price today:



South32 (ASX:S32)

BHP spinoff South32 has, like its big brother, avoided adding lithium to its diverse portfolio.

But South32 boss Graham Kerr has been similarly vocal about his plans to restructure the S32 asset base to favour battery metals and future facing commodities. He wants battery metals to make up 80% of company earnings going forward.

South32 owns the Cannington silver-lead-zinc mine in Queensland giving it exposure to the solar industry through silver’s core use in solar PV.

But it also has interests in base metals like nickel (the Cerro Matoso mine) and copper, which S32 made a major move into last year with the $2 billion purchase of a 45% stake on the Sierra Gorda mine in Chile.

The next major development on the cards for South32, which also produces manganese, alumina/aluminium and met coal, is its the development of the Taylor deposit at the Hermosa project acquired in its 2018 takeover of Arizona Mining.

It promises to be a major source of zinc, lead and silver, producing 111,000t of zinc, 138,000t of lead and 7.3Moz of silver a year over a 22 year mine life according to a 2022 PFS.

While the mine carries a high capex cost, Kerr believes the world does not yet appreciate the extraordinary demand for zinc and other base metals coming from the energy transition.

“I think zinc, that’s going to more than double production and copper, silver and zinc are going to play a big part in how the world decarbonises from solar panels, to electric vehicles to wind turbines,” he said on a media call in February.

“The other thing I don’t think people have done enough work on to be honest is the supply side in copper, in zinc, there’s been very low levels of investment over the last 10 years.

“There’s not many projects that are shovel ready to go, there’s not a lot of new discoveries and all of these … are starting to see significant supply, if you like, fall off in terms of grade decline or tonnage.

“So I think medium to long term aluminium, zinc, copper, silver they’re going to be really attractive commodities to actually be in and that’s why we’ve been shifting our portfolio that way, and why roughly 80% of our future earnings on a revenue basis will be directed towards those materials.”


South32 (ASX:S32) share price today:



Mineral Resources (ASX:MIN)

Perth-based Mineral Resources is an interesting beast, comprising of a mining services arm, iron ore business and lithium division.

It was an early mover in lithium, developing the Mount Marion mine near Kalgoorlie during the last lithium boom that it now owns in a 50-50 JV with Chinese giant Ganfeng.

MinRes also developed the massive 750,000tpa Wodgina operation in the Pilbara before selling 60% of the mine to US lithium monster Albemarle for $1.9 billion. Not bad given it purchased the deposit for so little it never bothered to disclose the amount.

The project was iced due to low lithium prices shortly after the Albemarle sale cleared in late 2019 but it’s set to make a roaring comeback, producing the maiden concentrate from the first of its three 250,000tpa processing trains to be restarted last week.

Another train is due to resume production in July while the JV’s Kemerton refinery is also nearing the end of its construction phase.

“Lithium is the most critical mineral to support decarbonisation and MinRes has established a world-class lithium business with Tier 1 partners within the world’s lowest-risk lithium jurisdictions,” MinRes’ chief executive of lithium Paul Brown said.

“This positions us well to increase output in line with market demands.

“It’s an exciting time for MinRes, our partners and our people – we’ve worked hard to build a 30-50-year horizon that will keep delivering opportunities for all stakeholders to achieve more success together.”


Mineral Resources (ASX:MIN) share price today:



Fortescue Metals Group (ASX:FMG)

Twiggy Forrest’s FMG is the major closest associated with “green energy” yet the one whose revenue is least tied to the theme.

While Forrest has made huge noise about saving the planet by becoming the world’s largest green hydrogen producer, every cent of revenue currently generated by Fortescue comes from its iron ore business.

Outside of its various green hydrogen, battery and renewables initiatives housed within Fortescue Future Industries — intended to help decarbonise Fortescue’s own mining operations before becoming a major energy export business in its own right — FMG has reported on efforts to explore for other metals in South Australia and South America, notably copper.

Its billionaire chairman Andrew Forrest has taken a liking to nickel though.

Between jet-setting around the world to lobby politicians on climate change and announce speculative hydrogen and renewables projects with eye-watering capital estimates, he did pip BHP to take out Noront through his privately owned Wyloo Metals.

Wyloo has stakes in a number of local nickel plays too, and could partner with IGO (ASX:IGO) on a potential downstream nickel processing facility as part of a deal made to guarantee Forrest’s support for IGO’s takeover of rival Western Areas (ASX:WSA).