BHP’s EV ambitions extend far beyond copper to nickel

Battery demand takes around five to six per cent of global nickel output but as motor makers around the world seek to enter the electric car market, they are becoming desperate to gain access to nickel sulfate. Picture: Oliver Bunic/Bloomberg

The motivation behind the BHP takeover of OZ Minerals goes much further than the South Australian copper project. OZ Minerals will be a key part of BHP’s ambitious plan to provide a significant part of the nickel sulfate required for the world’s electric vehicle battery market.

OZ Minerals’ nickel in the Musgrave Ranges will supply raw material for the 100,000 tonne nickel sulfate plant – sufficient to make 700,000 EV batteries annually.

But those in BHP with a deep sense of the company’s history must be somewhat embarrassed by the OZ Minerals takeover.

Back in 2014 BHP virtually gave away the Musgrave nickel deposit to a small company which joint-ventured with OZ Minerals and was later taken over by OZ.

And last September, a month after BHP announced its first bid, OZ Minerals chief executive Andrew Cole quietly rubbed salt into that BHP wound.

When announcing the $1.7bn Musgrave development, Cole provocatively included a chart showing it would be larger than any of the five BHP nickel mines in Australia.

There was a degree of flexibility in the definitions that produced the charts, so Cole was reminding BHP directors and the company’s chief executive, Mike Henry, that the talents at OZ Minerals turned an asset that BHP thought worthless into Australia’s largest nickel mine.

But there was a second part to Cole’s message to Henry via those charts: the culture at OZ Minerals is different to BHP.

Before joining OZ Minerals, Cole was a long-time executive at Rio Tinto but passed over for the chief executive’s post by a person that the St James Square brigade that control the company believed was more culturally consistent with their view of the world.

Paradoxically, Coles left Rio and joined OZ Minerals as chief executive in 2014 – the same year BHP gave away Musgrave nickel.

The 2016 decision to explore and prepare Musgrave for development meant that OZ Minerals would be developing both that mine and its South Australian copper projects at the same time. Musgrave involved $1.2bn in borrowing.

If anything went wrong with these developments the company’s share value would be jeopardised, so OZ Minerals has accepted the BHP proposal. But it won’t be easy for BHP to keep the OZ Minerals talent because it will soon become a shopping list for miners around the world.

The Musgrave plan was to truck concentrates – produced using solar and wind power – past the old Poseidon nickel mine near Laverton to Leonora where it would be taken by rail to Esperance.

Now, almost certainly, that nickel will be incorporated in the BHP operation, which culminates in the nickel sulfate plant next to Kwinana refinery.

Currently, battery demand takes about 5-6 per cent of global nickel output, with the vast majority being used in stainless steel. But as motor makers around the world seek to enter the electric car market, they are becoming desperate to gain access to nickel sulfate.

While new global plants are being erected, there will be a considerable shortage. If the takeover succeeds, the BHP nickel operation in Western Australia will pivot around its five major mines, led by Musgrave. In a strange way, the great nickel boom that was started by Poseidon in 1969 will come into fruition around 55 years later.

But during that boom Musgrave, which had been pegged by International Nickel, was not seen as a major resource, because it was dominated by laterite rather than sulfide ores.

But the techniques that were pioneered and developed by legendary late minerals explorer Roy Woodall at Western Mining Corporation were applied to Musgrave to reveal the ore bodies now set to be mined.

In 2005, BHP acquired WMC for about $9bn, looking to expand the Olympic Dam copper and uranium development. But soon after the acquisition there was a nickel boom and the sudden profits earned at WMC’s Kambalda paid for most of the acquisition.

BHP is now set to be an important player in the battery raw materials industry in both copper and nickel, even though it’s through a series of mines in WA rather than one big mineral resource.

According to OZ Minerals estimates at the launch of the Musgrave project, the company will spend $1.7bn on the development, helped by the WA government, which will construct a sealed road from Musgrave to Leonora.

Based on the nickel price projections in September, the mine would yield almost $10bn in cash flow during its 20-year life. But if it is part of a network of mines designed to be an integral part of the world electric vehicle movement, the potential is much greater.

Musgrave will also be a substantial producer of copper.

In both nickel and copper, BHP faces the challenge of operating a network of mines as distinct from large operations that dominate its coal and iron ore production. This will require a different breed of management skills, not necessarily common in the big mine culture of BHP.

But they may be aligned to the skills Cole has developed at OZ Minerals.