Rio Tinto, BHP and Anglo American are growing in commodities linked to the clean energy transition.

BHP, Rio Tinto and Anglo American share a common view

When the two largest and the fifth largest mining companies in the world share their business strategy, it is worth taking note of their views. BHP and Rio Tinto are the world’s two largest mining companies and Anglo American is the world’s fifth largest miner.

The three mineral producers presented at this month’s 2024 Global Metals, Mining and Steel Conference in the US and the common strategic theme was a shift to commodities linked to the energy transition. Rio Tinto, BHP, and Anglo American are tilting their production focus toward copper, high grade iron ore, potash, and lithium. These are the future-enabling commodities of choice for the world’s leading commodity producers.

Future-enabling commodities of choice 

The energy transition demand for copper and low-carbon aluminium is estimated to fuel 22 percent growth in combined copper and aluminium demand over the next decade just for electrification of the transport sector and the rising grid modernisation requirements.

Global steel demand continues to grow underpinning resilient demand for quality iron ore necessary to produce steel required for Chinese manufacturing, infrastructure, and property development. Chinese iron ore demand will continue to grow despite the weaker Chinese property market, because this softening demand is offset by stronger manufacturing and infrastructure demand for steel. China is the world’s largest steel market and presently accounts for around 60 percent of global steel production. In addition, there is a growing global demand outside of China in India and South-east Asia for higher grade iron ore. High grade iron ore is an essential ingredient in the only form of green steelmaking currently anywhere near commercial viability. Seven percent of global CO2 emissions come from steel production and so there is considerable pressure on the steelmaking industry to decarbonise, resulting in premium quality iron ore continuing to attract premium pricing.

Potash is an essential commodity that plays into the food security theme. Meeting the needs of a growing global population, sustainably, is a challenge for the agricultural industry. Potash is used to make fertiliser that increases crop yields by up to 5 percent, while restoring soil health. It is a natural product that doesn’t require chemical processing which means it has a significantly lower carbon footprint than conventional fertilisers and is suitable for organic use.

Lithium is essential for rechargeable batteries for mobile phones, laptops, and electric vehicles.

Accelerating value trend to clean energy metals

The earnings growth path for the world’s major mining companies involves an investment strategy that leans into the accelerating value trend offered by future-enabling commodities.

The clearest evidence of this accelerating value trend is the recently announced Anglo American strategy to focus on just three commodities; copper, premium quality iron ore and polyhalite, which is a commonly used form of potash. Anglo American has announced its intention to divest its diamond and platinum and other non-core assets, leaving it with a specific focus on its highly scalable copper assets in tier 1 jurisdictions.

BHP is already well positioned in a world where demand for copper is expected to grow strongly and has considerable exposure to iron ore, potash, and another future-enabling commodity in nickel. However, it is BHP’s desire to materially increase its exposure to copper production that explains its all-share bid for Anglo American. This bid has been firmly rebuffed on two separate occasions by the Anglo American Board. Interestingly, the CEOs of BHP, Rio Tinto and Anglo American attended last week’s 2024 Global Metals, Mining and Steel Conference in the US where the conference theme was a world responding to demand conditions for commodities linked to the global energy transition.

Rio Tinto is also growing in commodities linked to the energy transition, with a particular emphasis on copper, high grade iron ore, low-carbon aluminium, and lithium.

If the steel industry is to meet zero emission targets by 2050 by going completely green, Australia risks losing its standing as the clear number one player in high quality iron ore to countries with higher grade ore reserves like Brazil and Russia. This is encouraging major iron ore producers like BHP and Rio Tinto to focus production on clean energy metals like copper and lithium.

The Future

Mineral producers like BHP and Rio Tinto are certain to seek growth opportunities in commodities linked to the energy transition and that implies less focus on growing their iron ore and coal assets.

Investors can expect Rio Tinto to continue to invest in exploration partnerships like the strategic partnership with the National Copper Corporation of Chile, known as CodelCo, which is a Chilean state-owned mining company and the world’s largest copper producer.

Anglo American’s copper assets remain strategically important to BHP, and it is reasonable to assume that another bid from BHP may materialise in the weeks ahead. This is because Anglo American now has a much more focused portfolio comprising world class copper assets, a premium quality iron ore business and the long-term potential of its potash mine.

Acquiring Anglo American would be a game-changer for BHP. The merger would make BHP the world’s largest mining company and give BHP about 10 percent of annual global copper production at a time of rising copper prices and a tight supply-demand outlook.