The world’s biggest miner, BHP Group, grew powerful by building dominant positions in producing the minerals of the future. That makes the challenges it is facing with two key clean-tech ingredients a sobering lesson for the energy transition.
Nickel and copper have long been recognized as vital components of a decarbonized economy. The former helps to cram energy into the lithium-ion batteries used in electric vehicles and grid-scale power storage cells. The latter is used almost everywhere electricity flows — from wires, motors and turbines to heat exchangers and transformers.
Annual nickel supplies need to grow from about 3.1 million tonnes to more than 4.5 million tonnes in 2030 to keep the world on a path to net zero, the International Energy Agency says.
Illustration: Constance Chou
Copper must go from 22.7 million tonnes to 31.8 million tonnes.
Ideally, supply of both metals should be expanding at a rapid clip, with the emphasis most strongly on copper, where miners produce about 10 tonnes for every tonne of nickel.
The scenario that is playing out is close to the opposite. Chinese firms refining battery-grade nickel from the red soil of eastern Indonesia are flooding the market, sending prices down about 40 percent over the past 12 months and pushing about half of global production into losses.
While copper prices have fallen about 7.7 percent over the same period, almost every mine is churning out profits.
However, that is still not sufficient to induce more production to come onstream.
Fitch Ratings Inc estimates that supply would have fallen 1.1 million tonnes short of demand by 2029.
The most prominent bad news in BHP’s first-half results released on Tuesday is likely the US$2.5 billion impairment to an Australian nickel business that has been struggling for many years before briefly forecasting better prospects from the electric vehicle battery revolution.
“We did not anticipate, nor did the rest of the market, the rapid growth of Indonesian supply,” BHP chief financial officer David Lamont told investors on Tuesday.
The unit might end up being mothballed until there are signs that the market is recovering.
Yet the more favorable news on copper is not all that much better. BHP owns the world’s biggest copper pit, Escondida, and occasionally challenges Freeport-McMoRan Inc for the title of largest producer, but its plans to address the looming supply deficit as the world shifts to clean energy do not match the scale of the problem.
Some promising drilling results near its underperforming Olympic Dam mine in the state of South Australia and progress on ore-processing at Escondida are likely to consume about US$1 billion a year this year and next. That is far less than the US$10.6 billion that is being spent in the long term on getting BHP’s Canadian potash project into production.
Indeed, if the US$2.5 billion nickel impairment is added to the US$1.4 billion of capital spending in that division this year, the battery metal is gobbling up nearly as much shareholder value as the US$4.2 billion capital expenditure that is being dedicated to copper.
The closest thing to an upgraded target comes from South Australia, where there could be more than 453,592 tonnes of copper a year by the end of this decade, compared with a forecast range of 281,227 tonnes to 308,442 tonnes this year.
However, the shortfall in the global copper market will by then be an order of magnitude larger.
It is not going to be enough.
About US$250 billion needs to be spent on growth by 2030 to meet demand from the transition to net zero, BHP chief executive officer Mike Henry told an industry conference in Barcelona in May last year.
In a global market where it produces about one tonne out of every 13, BHP would need to be spending north of US$2.5 billion a year to shoulder its share of that burden — but guidance this year comes to US$900 million.
The trouble is, BHP does not have many attractive candidates to fix copper’s supply problem. At Cerro Colorado north of Escondida, there might be as much as 5.5 million tonnes of copper awaiting exploitation — but operations were suspended in December because the mine in its current form is too small and might need billions spent on water desalination if it is to operate again.
The Resolution venture with Rio Tinto Group in Arizona looks even more promising on paper, but approval has got tangled amid opposition from local First Nations groups.
That is worrying. Slumping prices for nickel and lithium mean that electric vehicles have far better prospects than the current gloom in the market would suggest, as materials costs fall and encourage wider adoption. Copper has the opposite problem. Current prices are great for miners, but they make every product that will drive the decarbonization of our economy a little more expensive. That can only slow the shift to zero.
David Fickling is a Bloomberg Opinion columnist covering energy and commodities. Previously, he worked for Bloomberg News, the Wall Street Journal and the Financial Times.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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