BHP increases copper exposure as the renewable energy transition gathers momentum

About BHP Group Limited

BHP Group Limited (BHP, the Group, ASX: BHP) is the world’s largest mining company by market capitalisation and produces essential commodities including iron ore, copper, and metallurgical coal and is moving into potash.

US$2.1 B Joint Venture stake in copper project

BHP’s strategic focus on future-facing metals exposed to the transition from fossil fuels to renewable energy is gathering momentum. The Group plans to invest US$2.1 billion in cash to acquire a financial interest in one of the world’s largest copper-gold-silver deposits. The Resource is estimated to contain 4.5 billion pounds of copper, 6.7 million ounces of gold and 210 million ounces of silver. Even without its primary copper base, this would be a globally significant standalone gold or silver deposit.

BHP and Canada’s Lundin Mining Corporation (Lundin) have agreed to jointly acquire 100 percent of Filo Corp., a Canadian-listed explorer that owns the Filo del Sol copper-gold-silver project located in the Andes. The early-stage project straddles the Argentina and Northern Chile border and at 5,127 metres is the most elevated resources project in the world. The processing infrastructure is located at 4,200 metres. The project is in an emerging copper district with world-class potential and is set to become a major contributor to the economy of Argentina. BHP’s joint venture partner (Lundin) has a 30-year operating history in Argentina.  The Joint Venture will likely be non-operated on BHP’s part, like its Samarco iron ore JV with Vale in Brazil.

The proposed transaction will proceed by way of a Canadian Plan of Arrangement which is like a court-approved Scheme of Arrangement often seen in Australia for similar transactions. Closing is anticipated to occur in the first quarter of 2025.

De-carbonisation is driving long-term global copper demand

BHP’s increasing exposure to copper is in response to the irreversible mega-trend of de-carbonisation, as fossil-fuels are gradually being replaced by renewable energy sources.

Copper is the world’s third most widely used metal after iron and aluminium. While iron ore and metallurgical coal are needed for global infrastructure and the energy transition, copper is essential for renewable energy sources to be connected to the electricity grid. Copper is more efficient than any other conduit for electricity and electrification underpins the transition to renewable energy sources. Accordingly, vast amounts of copper will be required to connect renewable energy sources to the grid.  BHP recognises this and understands the importance of copper in the manufacture of electric powered vehicles.

The Future

It is significant that BHP’s recent fourth quarter report didn’t just highlight record iron ore shipments from its West Australian iron ore business, but also posted the highest level of copper production in 15 years. Ongoing increased copper production is likely to be a permanent feature of BHP’s future production guidance.

A key underlying driver of copper production is global GDP growth. The sharp drop in global bond yields over the past month implies that the rate of global GDP growth is likely to slow further in the year ahead. For example, the 10-year US bond yield fell to 3.8 percent last week, down from 4.8 percent in April. A slower global economy generally leads to lower commodity prices. However, given copper is ubiquitous to electrification and electrification is essential to the clean energy transition, the long-term underlying demand for copper should continue to increase, irrespective of fluctuations in the rate of global GDP growth. Despite fluctuations in GDP growth rates, long-term GDP growth is not an accident; it is how the world works. This should support BHP’s earnings from its expanding global copper exposures and contribute to long-term share value accretion of Australia’s largest company.