BHP stays hungry

As the world’s largest mining company, BHP understands its responsibility to inspire and incite the decarbonisation hunt. And with infrastructure and investments mounting, the company has started to walk the talk.

Like most mining companies, BHP isn’t dubious about the path ahead. The world needs to decarbonise, and as society’s inherent foundation, the mining industry is going to be at the summit of the renewable energy transition.

Validating BHP’s ambitions to reduce its operational emissions by at least 30 per cent by 2030, preceding the ultimate objective of a net zero operation by 2050, are initiatives and innovations to drive down emissions.

In 2021, BHP has invested capital into decarbonising its current operations, supporting future advancements and pledging its commitment to organisations committed to developing new-age strategies to combat the stark climate reality.

During the 2021 financial year, iron ore made up the highest level of Scope 3 emissions at BHP, producing 260.7 million tonnes of CO2 across this timeframe.

By March 2021, BHP had instituted partnerships with three separate Chinese steelmakers to investigate ways of decarbonising steelmaking, an industry intrinsically fuelled by iron ore.

Backing the green innovations of HBIS Group, China Baowu and JFE, BHP had invested a combined $US65 million ($89 million) across the three companies, not to mention its support of Boston Metal’s $US50 million initiative to develop a separate decarbonised passageway for iron ore. 

BHP chief executive officer Mike Henry says decarbonising steelmaking will offer the mining industry some of its biggest challenges.

“With our recent ‘Say on Climate’, we have come out and committed to a target of net-zero Scope 3 for both shipping and the supply into BHP. But of course, that leaves steelmaking out there,” Henry, speaking at the 2021 Financial Times Mining Summit, says.

“Steelmaking is going to be quite hard to decarbonise. That is point number one. With known technology, it is still not economic to do so.”

BHP holds a grand position in the world’s steelmaking enterprise, but grandeur doesn’t necessarily lead to regulation.

“Point number two is that BHP’s ability to determine that outcome as the seller of product rather than the procurer of product, given the position that we occupy in the industry, is not an absolute or as significant as it would be in the case of shipping or supply into the company,” Henry continues.

BHP’s engagement with others in the supply chain demonstrates the company’s belief in collaboration. 

Its partnerships with HBIS Group, China Baowu and JFE will assist these steelmakers in reducing their Scope 1 and 2 emissions, while BHP in turn works to drive down its Scope 3 emissions.

Olympic Dam is using renewable energy to decarbonise.

Through BHP Ventures, which is solely focussed on developing early-stage technology companies and start-ups, there are other decarbonisation endeavours in the works.

Henry hesitates from disclosing information on any immature workings, however.

“We also have, through our Ventures arm, some investments in even more bleeding-edge or cutting-edge technologies to enable steelmaking decarbonisation,” he says.

“I cannot go out with integrity and commit to something that is still as early-stage as the decarbonisation of steelmaking is. 

“I want to ensure that anything we are specifically putting a target out there on is something that we have a high degree of confidence in our ability to achieve and that we have a real understanding of both the technologies and the costs required for doing so.”

Decarbonising steelmaking is one piece to the net-zero puzzle, and forms part of BHP’s broader environmental, social and governance (ESG) strategy.

The ESG movement has separated the sheep from the goats, highlighting the ethical investors while exposing those less inclined to embrace the climate reality.

Henry believes the ESG movement is going to bring out the best in us, however, like introducing anything new of this scale, there’s going to be hiccups.

“In any time of significant rapid change like we see on the ESG front, of course there are going to be unintended consequences and imperfections in the way the system operates along the way,” Henry says.  

“The challenge for all of us is to come together and get the system operating in the way that the world needs it to operate as quickly as possible.”

In the event that the push for decarbonisation escalates the demand for certain resources, there’s also the potential for an unbalanced market.

“In the strong push for decarbonisation with the ensuing implications in terms of copper demand, nickel demand and so on, the world does need more copper supply to be brought to the market more quickly, and the same for nickel,” Henry says.

“Without a concurrent focus on community, water stewardship, biodiversity and so on, you could see unintended or bad consequences on those ESG fronts.”

Henry believes the mining industry must take a bird’s eye look at its ESG strategy before going all in.

“As we all look to grow supply in those commodities, it is important that it is done with a broad-based focus on ESG,” he says.

“Yes, the commodities supply decarbonisation, but we need to ensure that the standards are set around things like water stewardship, biodiversity, community engagement and Indigenous cultural heritage.”

With clear standards comes clear benchmarks, and in a perfect ESG world, mining companies would be answerable to an overarching criterium. But there’s still work to be done in this regard.

“Right now, in certain areas the standards still have further to improve. They need to be as global as possible. The way that companies get benchmarked against them still has opportunity for improvement,” Henry says.

“If we can get all of that right, the world will be able to meet the needs of decarbonisation efficiently, timeously and in a way that sees concurrent improvement in absolute performance in other areas of ESG as well.”

BHP offloading its 80 per cent stake in BHP Mitsui Coal (BMC) – the joint venture representing the Poitrel and South Walker Creek metallurgical coal mines in the Bowen Basin – could demonstrate the company’s contracting embrace of this fossil fuel.

Initially flagging its intentions to offload BMC in August 2020, Henry says the assets have not provided the company sufficient profits.

BHP Minerals Australia president Edgar Basto says the divestment forms part of the company’s net-zero transformation, suggesting the need for higher quality metallurgical coal is imperative to align with steelmakers’ low-emissions obligations.

Elsewhere, BHP is on the decarbonisation hunt at the polymetallic Olympic Dam mine in South Australia, announcing it will enter renewable energy supply arrangements with Iberdrola to reduce emissions at the operation.

In October, BHP produced the first nickel sulphate crystals from its Kwinana nickel sulphate plant in Western Australia.

Nickel sulphate is a key material in the lithium-ion batteries that power electric vehicles (EVs), with more than 85 per cent of BHP’s current production sold to the future-battery supply chain.

The production follows an announcement in July that BHP will supply Tesla with nickel from its Nickel West assets in a collaboration which will aim to make the battery supply chain more sustainable.

Again, Nickel West is another demonstration of BHP’s overarching ambition to suppress its carbon footprint. 

Decarbonisation is not just a prevailing trend at BHP; it underlines every discussion and every investment. 

With the fervour to act and the infrastructure mounting, the stage is set for BHP to inspire a decarbonised mining industry going forward. 

IMARC unites the investment community

Where global mining leaders connect with technology, finance and the future, IMARC is shaping up as a must-attend event for the industry in early 2022. 

As the leading international event series connecting sophisticated investors from around the world with mining company management teams both online and in person. 

Mines and Money will leverage off the scale of the International Mining and Resources Conference (IMARC) and bring its unrivalled network of thousands of investors in-person to Melbourne, and online for those that cannot attend in-person.

Being co-located alongside Australia’s largest mining event, will not only put mining companies in front of the hundreds of investors that attend Mines and Money events, but will also reach thousands of private investors, with the event expecting upwards of 8000 attendees.

Mines and Money @IMARC provides an excellent opportunity to identify and compare new investments. 

With professional investors meeting exciting explorers on the cusp of the next big discovery, near-production development companies and cash generative producers to discuss their next big mining investment. 

Gain insights into commodity trends that will guide your investments

Gold, silver, copper and battery metals are just some of the commodities you can expect to hear about from some of the greatest leaders in mining, investment and finance with more than 250 mining and resource experts providing the latest market commentary, project updates and insights into current commodity trends that can shape investment strategy. 

Connect with senior management of mining companies

More than 800 mining and energy companies are expected to attend the event. From diversified majors such as BHP, Rio Tinto and South32; to gold mid-tiers including OceanaGold and Evolution Mining; through to some of the most compelling exploration and development companies such as Multicom Resources and Wiluna Mining.

You will be able to assess and compare a range of companies from around the globe, across the commodity spectrum and at all stages of the life cycle by connecting with the senior management of mining companies directly on the expo floor.

Hundreds of networking opportunities

Whether you’re looking for private equity, or private investors, there will be ample opportunity for you to meet thousands of decision makers, mining leaders, investors and financiers with more than 70 hours of networking opportunities.

Our bespoke AI-driven matchmaking platform pre-qualifies your investment needs and gives you the power to search investors by type, commodities, project stages, regions and stock exchanges of interest.

Enabling you to identify the right investors for your projects so you can schedule lucrative meetings, leading to more deals and opportunities.

In-person and online

As a hybrid event, you can expect more meetings, more connections and to meet more international investors than ever before.

The hybrid event will welcome Australian attendees in-person to Melbourne, and international attendees from more than 130 countries online from January 31 – February 2, 2022.

Claim your complimentary investor pass at minesandmoney.com/imarc. Not an investor? Not to worry – receive 10 per cent off delegate passes by registering with the discount code AUSRI. 

 

Listen to insights from some of the greatest leaders in mining, including:  

  • Johan van Jaarsveld, chief development officer, BHP 
  • Sandeep Biswas, managing director & chief executive officer, Newcrest Mining 
  • Wendy Holdenson, chief operating officer, Mitsui & Co (Australia) 
  • Troy Hey, executive general manager – corporate relations, MMG 
  • Rohitesh Dhawan, chief executive officer, International Council on Mining and Metals (ICMM) 
  • James Agar, group procurement officer, BHP 
  • Mark Cutifani, chief executive officer, Anglo American 
  • Lisa Ali, chief people & sustainability officer, Newcrest Mining 
  • Rt The Hon. Helen Clark, chair, Extractive Industries Transparency Initiative (EITI) 
  • Ian Hamm, chair, First Nations Foundation 
  • Tom Palmer, president & chief executive officer, Newmont 
  • Chris Griffith, chief executive officer, Gold Fields 
  • Joanne Woo, global VP, division head of marketing & communications, ABB 
  • Tony Makuch, president & chief executive officer, Kirkland Lake Gold 
  • Michael Nossal, chair, IGO 
  • Robyn Dittrich, VP, procurement – technology, communities & enterprise, BHP. 

Gold

The great gold vs crypto debate

The recent performance of cryptocurrencies coupled with year-to-date outflows from gold ETFs has led to questions about whether cryptocurrencies are displacing interest in gold.

Andrew Naylor, regional CEO APAC (ex China) of the World Gold Council, explains why this is not the case.

A question often asked is the impact of cryptocurrencies on gold as an asset class, and whether interest in crypto will displace interest in gold.

The short answer is no – they are fundamentally different asset classes. Gold is also a physical asset and by definition crypto-currencies are not. But arguably one of the most significant differences is the very different nature of demand for both assets.

Unlike crypto, gold has a very diverse demand profile and use-case(s). It also has intrinsic value. If you look at the sources of demand for gold over the period 2010-2020, investment demand accounts for approximately 42 per cent of annual demand, jewellery 34 per cent, central banks 17 per cent, and technology about 7 per cent.

Each of these sectors of demand has different drivers – jewellery and tech demand often increase in times of economic expansion.

Investment demand is driven by uncertainty, and central bank demand by a combination of both. The unique and diverse nature of demand for gold, underpinned by different drivers, means gold performs differently from other asset classes, including crypto.

The result is that gold is often not significantly correlated to most other assets, particularly in downturns, making gold a potential diversifier.

There are other factors that distinguish gold from crypto – its liquidity, volatility profile and its role in a portfolio.

Crypto assets can be volatile and are not without risk so an argument can be made that the higher the exposure to crypto, the greater the need for an asset that can mitigate risk such as gold. It is therefore important to consider the different roles that cryptocurrencies and gold play.

Earlier this month bitcoin futures were launched. Whilst an interesting development, they are structurally different to physically-backed gold ETFs.

The bitcoin ETF does not hold the underlying asset – it is based on cash-settled bitcoin futures. Physical gold ETFs hold the underlying asset – physical gold.

The final point to consider on cryptocurrencies is the regulatory framework. This is constantly evolving and is not yet settled, adding another element of risk to the cryptocurrency market.

Andrew joined the World Gold Council in 2016 and has led the regional office in Singapore since 2020.

So if cryptocurrencies are not displacing gold, what are the reasons for gold’s mixed performance so far this year?

It has been an interesting year for gold. From last year’s record high gold price and inflows into ETFs, gold has so far had a more mixed year. The World Gold Council’s latest Gold Demand Trends Q3 report showed an overall decline in demand of seven per cent year-on-year.

Retail demand has started to pick up as the ending of COVID restrictions and recovery of economic activity in many markets has increased consumer sentiment – jewellery demand increased 33 per cent year-on-year and bar and coin demand – a category of physical gold products overwhelmingly bought by retail investors – saw a year-on-year increase of 18 per cent.

But despite consumer demand starting to recover, ETF outflows, albeit modest, were enough to place overall gold demand into a year-on-year decline. This is a reflection of gold’s dual nature.

Economic growth is a primary driver of consumer demand. But institutional investment demand has other drivers, including the interest rate outlook and market uncertainty.

Gold ETFs have experienced outflows in six of the first 10 months of the year as ETF investors have generally followed gold price trends. The picture though is mixed – European and North American ETFs have seen outflows, but Asia-based ETFs have seen modest inflows this year.

Outside of slightly negative Q2 flows, Asian gold ETFs have consistently stood out as the often lone growth driver among global funds, having added nearly $US1.3 billion ($1.8 billion), or 18 per cent, in the year to end-October as concerns mount around regional economic growth.

Australia has similarly seen inflows where (as at October 31), gold ETFs saw inflows of 6.5 per cent.

Despite the overall modest outflows from ETFs in the last quarter, gold is once again regaining its shine. In October, gold gained 1.5 per cent in the face of a surge in inflation expectations, higher bond yields, and a weaker dollar. More recent news suggests that this will be sustained, meaning institutional interest in gold could once again pick up.

Inflation may drive interest in gold

As countries emerge from lockdowns and economies continue to recover from the impact of COVID, consumer demand (jewellery, bars and coins, and technology demand) is likely to be supported. When it comes to institutional investment demand, the shifting policy environment may be a challenge.

While gold has been inversely correlated with nominal interest rates over recent years, gold strengthened during October despite higher nominal rates. One of the reasons for this could be inflation expectations.

In the United States, CPI and wages grew the most in 30 and 20 years respectively. Here in Australia, core inflation jumped higher than forecast at the end of October, the quickest increase in six years. Inflation will be a consideration in the minds of policymakers, businesses and investors for some time to come. This may renew institutional interest in gold.

This article appeared in the December issue of Australian Resources & Investment.