BHP deal puts spotlight on the global nature of capital

BHP’s proposed $56bn takeover bid for rival miner Anglo American is both a pointer to the future and a reminder that the Big Australian has long been a truly global company that will make its decisions on those terms. For the future, the Anglo deal is seen as a way to deliver on a desire by BHP chief executive Mike Henry for the company to get big in copper, the metal that is seen as central to rewiring the world for renewable energy.

BHP is already one of the world’s biggest producers of copper, much of it coming from operations in South Australia. A successful buyout of Anglo American would give the company global-scale copper operations in Chile and Peru. It would also expand BHP’s iron ore operations in Brazil and make the company the dominant force in Queensland’s production of metallurgical coal, used for steelmaking. Strategically, the bid puts BHP further at the front of a global bifurcation of supply of important resources as part of a bigger division between Western interests and China.

For Australia, the deal highlights the legacy of global advantage we enjoy in mining and resource development. But it is also a reminder that mining is a global business in which there is fierce competition for development capital. On this front, the latest warnings from the Minerals Council of Australia must be taken seriously by government. Research conducted for the MCA estimates Australia lost $68bn a year in potential investment in major mining projects between 2013 and 2023, with only 19 per cent of projects over the decade successfully reaching a final investment decision.

Rather than a pipeline of projects, it has become a list of possible options, most of which will fail to make it through the cumbersome and expensive regulatory process. The value of projects that have successfully completed all studies, received approvals, secured financing and started construction has fallen from $255bn in 2013 to $75bn in 2023. MCA chief executive Tania Constable says this reflects the fact that projects were being put into the “too hard basket, because the investment environment in Australia is too challenging”. Ms Constable says a “significant chunk of possible mining investment” was not being realised because of government policy settings.

This is a dilemma that could get much worse. Since taking office, the Albanese government has shown itself willing to interfere in markets and increase the burden on business. This has been particularly so in energy, where the government has introduced price caps and supply mandates. The problem has been made more pressing by state governments that have imposed super royalties on profitable operations. Major trading partners and investors have complained that the Albanese government has been prepared to change the rules once investment decisions have been made. Meanwhile, a rise in lawfare by green groups can cost a fortune and frustrate development decisions for years, even if the complaints are not ultimately successful.

The government is at least getting a taste of how difficult investment planning can be, given the delays and cost blowouts in the big decarbonisation push that has dominated so much of the government’s thinking. Unlike government, private sector investors cannot simply change laws or tap taxpayers for subsides when things go wrong. The danger is that the government is gearing up to further interfere with investment risk with its plans for the misnamed Future Made in Australia policy, which most economists see as a return to the bad old days of protectionist policies designed to pick winners.

Given the long lead times and high sums involved in resource investment, the government must be alive to any changes in perception of sovereign risk and pull back on investment. The BHP advance on Anglo American is a fine demonstration of the global nature of minerals development. The rise of the China-backed nickel developments in Indonesia are proof enough that Australia is not always competitive.

Government must play its part. This includes cutting back on red and green tape that produce endless delays, and winding back restrictive industrial relations laws designed to increase union influence to the detriment of workers, productivity and the economy.