Big miners change their tune on climate

Don’t for a moment expect a predictable path towards a ‘green future’ among the major mining stocks.

Fossil fuels are booming as the giants walk away.

Mike Henry, the chief executive of BHP, just had a big win. At this week’s annual meeting he got his ambitious “climate action road map” approved by a massive 83 per cent vote of support. Our biggest miner will now be aiming for net zero emissions by 2050.

But one problem will surely be nagging at Henry: BHP still has coal on the books and coal prices have tripled over the last year.

What’s more, BHP’s key commodity, iron ore, has just witnessed a sharp drop, with prices plunging from $US230 to $US130 a tonne. That means the extra $US6bn in revenue that coal is going to bring into the BHP annual result will be crucial.

BHP has signalled its intention to exit key coal assets, but unlike rival Rio which quit coal years ago, Henry will have to sell out of something that every company boss wants badly – a jewel in the crown, a unit that is shooting the lights out.

Henry will also have watched as oil prices – similarly powered by the global energy supply crisis – have bounced dramatically higher since he did a deal to pass oil assets across to Woodside Petroleum.

It was not that long ago that oil endured a short spell of being technically valued at zero – it is now at a seven-year high of $US80 a barrel.

And don’t think for a moment that money is not flowing into fossil fuels if there is money to be made.

Take KKR, one the world’s largest private equity investors. It might be promoting its credentials in working towards a more sustainable economy. But a US report this week found that the biggest private equity groups have recently been bargain-hunting in the oil industry, buying discarded projects and putting the vast majority of its money into non-renewable assets.

Welcome to the dilemma for Mike Henry, and every Australian investor: money is rushing into the “green” economy but a surprise combination of energy demands and improved global economic activity means that fossil fuels are suddenly hotter than Australian house prices.

A diplomatic, long-time mining executive, Henry is treading cautiously as he navigates BHP from the old world to a new greener environment.

BHP rival Fortescue is on the same path, but founder Andrew Forrest is an entrepreneur and, unlike Henry, a very loud protagonist in the wider climate debate.

Forrest became a household name for making a fortune at Fortescue and for standing on the back of a truck haranguing the government against mining taxes some years ago. These days Forests harangues on a different issue – clean energy – and this week in an interview with the BBC he publicly called for PM Scott Morrison to attend the Glasgow Climate Summit.

Henry and Forrest are doing the same thing, but they are split on how to do it, and this has become clear on the headline issue of hydrogen power.

This week Forrest – through subsidiary Fortescue Future Industries – led an announcement for a very ambitious “green hydrogen” plant near Gladstone in Queensland which would ultimately become a $1bn project creating more than 1000 jobs. (Green hydrogen is made with renewable energy, in contrast to blue and brown hydrogen made from oil or coal.)

With superb timing Forrest beat new NSW Premier Dominic Perrottet’s announcement of an $80bn green hydrogen strategy, which is meant to make the state a green energy superpower.

Forrest says emission-free green hydrogen will create new green energy on a huge scale – transforming heavy industries and taking the place of coal, or indeed other forms of hydrogen. This transformation would include green steel.

Henry does not buy into the promise of green steel, suggesting BHP is not willing to make investments in that direction.

Forrest says of course it can all be done, all obstacles can be overcome (there are many technical leaps that would have to occur before hydrogen can be stored and exported).

For investors watching from the sidelines it is enthralling, but difficult: the coal and oil companies are rebounding on the sharemarket, but the companies that produce coal and oil are deeply occupied with the future of energy where the world is moving towards net zero emissions by 2050.

Looking ahead, whatever your opinion on the climate debate and the rush to green assets, one thing is clear: the big miners are going to remain front and centre.

For a private investor to get involved directly in a clean energy asset such as green hydrogen just now the pathways are slim – exchange-traded funds or very small, very speculative small cap stocks such as Lion Energy or Hazer.

Meanwhile the big-dividend-paying miners are reshaping before our eyes.

Fortescue is investing in hydrogen, BHP and Rio have a range of so-called battery metals. South 32, the BHP spin-off which took some of the parent company’s less environmentally appealing assets, just bought a copper mine and rebranded for what it calls “a low carbon future”.

The road to net zero will not be a straight line – and traders such as private equity funds will make money any way they can while the shift plays out in the years ahead.

For most private investors, miners will remain a key entry point: they are by no means giving up the game to anyone else; they are instead changing colour.