Monsters of Rock: BHP sees big future for potash as new world emerges
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BHP (ASX:BHP) executive Ragnar Udd caused a stir when he thumbed his nose at lithium in comments last week.
The boss of the world’s biggest miner, CEO Mike Henry, doubled down on those comments this week in a Q&A after a talk at the Bank of America Merrill Lynch Global Metals, Mining and Steel Conference, saying the company sees bigger opportunities from the shifting face of the commodity market elsewhere.
In short, he says barriers to entry in lithium are low and resources are abundant, despite the astonishing 10-fold uplift seen in prices of the battery metal in the past year as demand from EVs has greatly outpaced supply.
“It’s not lost on me that I’ve been talking for a couple years now about the fact that we don’t like lithium, that it’s not a commodity for BHP long term and all the while prices have gone up. In short, our views haven’t changed,” he said.
“It’s something that we keep a watching brief over, but we look at the amount of lithium out there, it’s significant so we don’t see real long term constraints on in terms of resource.
“Barriers to entry are relatively low, as we see with all the juniors popping up in Australia currently, the demand outlook we think it is strong. So we’re pretty aligned with everybody else around the demand prospects of lithium driven by our views of the resource, how we are see the long term shape of the cost curve playing out and then finally, our other options.”
Those other options include future facing businesses in nickel and copper, which Henry says BHP has the opportunity to grow organically.
Then there’s its less talked about investment in potash. BHP, best known for its massive iron ore business in the Pilbara, last year approved the construction of its US$5.7 billion Jansen potash mine in Canada.
It is playing the long-term food security thematic with that one, another angle to the ESG-directed ‘future facing commodities’ companies like BHP are chasing these days, approving the investment despite its huge scale and capital costs.
Henry says the Russian invasion of Ukraine highlighted the importance of developing new sources of fertiliser for a growing global population, with Russia and its allied neighbour Belarus contributing 40% of world supply.
“The tragic events of recent months playing out in the Ukraine have highlighted the higher than usual potential for supply side disruption in this market or in this commodity with Russia and Belarus, accounting for 40% of global production,” Henry said.
“In August of last year, we approved the first stage of Janssen and standing here today of course I wish we had approved this five years ago or even 10 years ago, because we would have been enjoying another $2-3 billion of EBITDA per year.”
Henry said BHP is already studying a stage 2 expansion beyond the mine’s opening in 2026, with all four proposed stages of Jansen – a mine with a proposed 100 year life – adding up to 16-17Mtpa or 25% of the current global market.
Meanwhile Henry, who says demand-led inflation should support strong prices for the company’s suite of commodities, said the company is not under any pressure to complete big M & A deals to pursue growth, particularly in copper, nickel and potash.
He sees as many opportunities by tapping into brownfields expansions from BHP’s existing prospects.
“For a new Greenfields resource getting that permitted, turning that on, that’s a 15 to 20 year prospect,” Henry said.
“That’s where I point back to the big resources that BHP has and as we’ve been developing those other projects we’ve had underway … there’s more I wish now that we had of done in terms of focusing on the brownfield options within the existing resources.
“We’ve got an accelerated effort underway … and that could certainly be under a 10-year window for some of those.”
Like BHP fellow diversified miner South32 (ASX:S32), initially spun out of BHP to take on its unloved assets in manganese, silver, aluminium and coal among other bits and pieces, is pivoting hard to ‘future facing commodities’.
It’s next big growth project is the Taylor mine at the Hermosa project in Arizona. Questions have been raised about the massive investment South32 has and will have to make into the project, including a more than $500 million deal to acquire Arizona Mining in 2018 and a potential $1.7 billion price tag to construct the Taylor underground zinc, lead and silver mine.
Also speaking at the BofA conference, South32 boss Graham Kerr reiterated his reasons for why the market is sleeping on zinc, a commodity where low supplies recently powered the metal to highs in excess of US$4000/t.
“If you’re looking at a one and a half degree world from 2020 to 2050, you really see the need for these materials,” he said.
“For example, aluminium will benefit from higher intensity use in electrical vehicles and substitution of fossil fuel based plastics and packaging.
“Copper we all know about the value that that will drive in terms of EVs, charging infrastructure, renewable energy but zinc again as I mentioned is one that we think is quite misunderstood.
“Zinc in itself will be used largely in solar panels but also wind turbines to protect against corrosion. And we can actually see a tenfold increase in a one a half degree scenario world and zinc again for us as an interesting commodity because it actually has a lot of drop off in terms of current supply.
“And you also need almost three Taylor deposits to be developed every year to try and meet that gap.”
Kerr says South32 remains comfortable with its exposure in the manganese industry, where he says steel recycling and the substitution of high prices and rare metals like cobalt in lithium-ion batteries will be supportive of demand, while South32 has ’25 active exploration programs’ targeting base metals.