Copper market’s biggest whale fuels speculation of a major shift
The world’s single biggest buyer of copper, State Grid Corp. of China, has slowed its purchases of copper wire this year.
BHP (ASX, LON, NYSE: BHP) chief executive Mike Henry said the company is ready for a strategic shift out of its geographical, advanced-economies comfort zone into “tougher jurisdictions”, as part of its plans to increase exposure to commodities such as copper and nickel, needed to power the energy transition.
Speaking at the Financial Times conference late on Thursday, the world’s largest miner’s CEO said he was confident the company could manage the risks of investing and operating in politically volatile countries.
“But of course, the size of the opportunity needs to be commensurate with the increased management effort that is going to be required to pursue opportunities in jurisdictions that we may not currently be operating in,” Henry said.
His comments followed reports this week that BHP is looking at buying into a project in the Democratic Republic of Congo. Bloomberg reported the company is already holding talks with billionaire Robert Friedland’s Ivanhoe Mines (TSE: IVN) over an exploration site adjacent to Ivanhoe’s Kamoa-Kakula mine, known as Western Foreland.
This also coincides with DRC Prime Minister Jean-Michel Sama Lukonde’s declared intention of enticing more investment into its vast copper and cobalt deposits.
BHP’s top boss noted that while the company won’t shy away from challenging mining jurisdictions, it is open to explore in “areas we like” even though they involve higher costs.
“I want to be clear we don’t see exploration success as being confined to moving into new jurisdictions. We know there is more copper to be found in the areas we like but it is going to be harder to find and perhaps deeper, which is going to bring different technological and financial challenges,” he said.
Commenting on Fortescue Metals’ (ASX: FMG) foray into green hydrogen to support environment-friendly steel production, Henry said BHP doesn’t believe that that would be a good use of shareholder capital.
“Hydrogen will have its day, but it’s going will take some time to get there given current economics… and the massive quantity of capital needed to develop green direct reduction iron (DRI),” Henry said. It could cost “many hundreds of billions of dollars” to decarbonize the world’s entire steel industry using green hydrogen-based direct reduced iron, he said.
One major factor to consider is that many of the world’s major blast furnaces, including in China and India, still have 20-30 years’ useful life left. The industry needs to consider the “sunk capital” in those blast furnaces, Henry noted.
“The economics of that will prove to be too challenging …. for a rapid switch to hydrogen,” he said, adding that BHP expects hydrogen “to make bigger inroads in two to three decades’ time.”
