Right policy key to powering BHP, nation’s next boom: Robert Gottliebsen

BHP, led by CEO Mike Henry, has delivered strong returns for shareholders through the Japanese and Chinese booms. Picture: Aaron Francis

BHP’s half-year profit fall due to weak iron ore prices masks the potential for a totally new era for The Big Australian.

If all goes well – and there are obviously no certainties – BHP’s expansion rate is set to explode as it seeks to take advantage of the massive increase in the demand for copper, nickel, steel and other minerals as a result of global electrification.

BHP is stepping up its capital expenditure rate from around $US7.6bn ($11.01bn) to $US10bn, but if the environment is right, that is just the start.

In the last 60 years, BHP and Australia have generated enormous wealth – first via the Japanese transformation and then from China.

But the potential of wealth generation through electrification looks like being much bigger than the China and Japanese booms combined, with the potential to transform both BHP and the nation.

The combination of BHP chairman Ken MacKenzie and chief executive Mike Henry has delivered unprecedented prosperity for shareholders and the nation’s tax revenue.

Capital spending has been restrained and dividends maximised with the profit boom underwritten by BHP’s iron ore cost of $US15.50 a tonne and much higher prices for iron ore, despite the latest fall.

Leaving aside potash, BHP has three major potential thrusts to take advantage of electrification – copper, nickel and iron ore.

The electrification boom will extend into steel because of the large number of factories that will need to be set up for electrification.

BHP’s copper assets in South Australia, including any potential takeover of OZ Minerals, could deliver a world-scale copper development.

At the moment, carmakers around the world are boldly declaring that they are going to stop making petrol and diesel vehicles and replace them with electric vehicles.

But as it stands now, the mining industry is simply not prepared for this development.

Both the US and Europe have woken up to both the mining opportunity and the fact that the likely explosion of metal prices will trigger a new wave of inflation, with implications for long-term interest rates.

In copper, some of the projections show that demand for the metal will rise seven-fold. It certainly is going to double and perhaps quadruple.

The mining industry has simply not been investing on the scale required to meet these massive increases.

But governments, particularly in the US and Europe, are waking up to the fact that they have to lift the production of copper and other electrification minerals on a dramatic scale.

The US is offering tax incentives and rapid start-up approvals to get production moving. Europe is not far behind.

But the US thrust goes much further.

We saw how the tiny Australian company, AML3D, has buttoned into the massive technology development in defence and looks to be a world leader in large component 3D printing.

But that US technology thrust extends deep into mining and minerals processing.

Here in Australia, our government has little concept of the opportunity created by electrification.

Indeed, current policies involve price caps, compulsory acquisition of materials and all the actions state and federal governments can dream up to stop investment.

But if the state and federal governments wake up – a big ask – the South Australian copper basin will emerge as one of the biggest copper producers in the world.

In the interim report, BHP announced very encouraging drill results at Oak Dam, which is very near Olympic Dam.

And if BHP is successful in acquiring OZ Minerals, the whole complex can be a world-scale copper development.

But it won’t go ahead with current Canberra policies.

BHP has a second copper basin to develop in Chile and, almost certainly, the Chilean government will want that to be developed urgently.

In addition, America wants to lead the pack and Africa has major mineral deposits.

Although demand will be huge, there is a limit to how much can be developed at once, and Australia will have to decide if it wants to be a part of the global electrification mining boom.

The Mt Keith region in WA is the second-largest resource of sulphide nickel in the world.

BHP's Blackwater coal operations, part of its BVMA asset group. Picture: Supplied

China has been investing heavily around the world in lateritic nickel in preparation for the boom – one of the few areas where the mining industry has moved ahead of the demand.

BHP believes that there will be sufficient copper and nickel in the world to satisfy the demand, but it normally takes around ten years from the discovery of a mineral to its development.

Both BHP’s Australian copper and nickel deposits have been well delineated, so if the Australian government wants to participate in the electrification boom, we are very well-placed to develop these resources as fast as anywhere in the world.

In this new world, we are replacing hydrocarbons with solids like copper, nickel, cobalt, lithium etc.

Every miner in the world is nervous that a minister like Chris Bowen will simply come around one day and say I want 10 per cent of your production and I will pay you a low price. They will not develop Australian mineral resources under that sort of long-term threat.

If Australia wants to secure copper and nickel development, then it needs to set out the terms very clearly and companies will then decide whether to invest in Australia or go elsewhere. But the Bowen-created uncertainty needs to be sorted out very quickly.