Project development must step up to meet energy transition, BHP CEO says

Head of world’s largest mining company warned the world is at risk of failing to secure minerals essential for the move towards new generation energy if project development continues at current pace

Mike Henry, chief executive officer of BHP, remained optimistic that the supply shortfall would be met as momentum towards the energy transition continues to build, he said on Wednesday, January 11.

He told the Future Minerals Forum in Riyadh, Saudi Arabia that the current understanding of the urgency required for the energy transition and the importance of mining did not exist two to three years ago.

“Now, there’s a really broad-based understanding of the critical nature of critical minerals, and the urgency with which those minerals need to be invested in and brought to market,” he said.

“Yet even at the current pace, we’re not going to be able to meet the world’s demand for critical minerals in time. But momentum is building and I’m optimistic that we’re going to be able to get to where we need to be in reasonably short order,” he added.

According to Henry, the energy transition, which aims to slash carbon emissions to net-zero and electrify transportation and energy networks, will need two times as much copper, steel, iron ore, and coking coal and four times as much nickel over the next 30 years as it has used over the past 30 years.

This will in turn require a significantly increased amount of mining because deposits are lower grade, resulting for example in three times as much copper mining and six times as much nickel mining, he said.

Fastmarkets analysts forecast that copper, used in electric vehicles (EV), battery storage, charging infrastructure and renewables, will show a deficit of 307,000 tonnes in 2022, and was in deficit for the preceding three years.

Nickel, used in batteries for EV and a key ingredient in the production of stainless steel, is meanwhile forecast to be in a surplus of 89,000 tonnes in 2022, and was in a deficit of 154,000 tonnes in 2021, Fastmarkets analysts estimate.

Keep up to date with nickel market dynamics with our nickel long-term forecast

Permits and standards lengthen journey

The timeframe from first discovery of a deposit to its production has meanwhile risen from ten years about 20 years ago, to 20 years currently, meaning the path to production is significantly longer, Henry said.

These factors, along with more onerous processes and more bureaucracy, are sitting within the control of governments who are responding to local community concerns, Henry added.

“What we’re seeing today is a much-enhanced understanding on the part of governments of the importance of mining and need to bring these resources on quickly. I don’t think that’s yet being matched by the understanding of the person in the street,” he told the conference.

The solution is for mining to be more front-footed in terms of its engagement with the media and the public, and for governments to promote the importance of mining, he said.

“Sometimes I think it can be difficult for governments because there is a temptation at times to call the industry out for something for populist reasons. At the same time, you have to recognize that unless we get the public on side, it’s going to be difficult for us to bring projects on at the pace at which they need to be brought on,” he noted.

“So, there’s a collective interest on the part of governments, industry and capital markets to get out there and tell the positive story of the sector,” he added.

Henry said a personal frustration is the plethora of standards around environmental, social and governance (ESG) issues that have been born out of a growing recognition of the metals-intensive nature of the energy transition, as well as the potential for negative consequences if production isn’t managed effectively.

“If I could wave a magic wand, I’d love to get governments, standard setters, industry, capital markets, ESG ratings agencies, all around the table, to align on the fewer number of high standards that we can all then invest our efforts in, because that would allow us to move quickly,” he told delegates.

Fiscal stability key to new generation energy

According to Henry, the increase in mining activity required for the world to meet the energy transition is not going to happen without private capital. But uncertain fiscal policy is the “single biggest killer of investment,” he said, noting that confidence in the underlying fiscal regime of a country and its approach to mining companies is essential.

“Often times, capital will flow to other jurisdictions or leave the industry for other sectors where they do have more fiscal certainty. That is one of the risks to the energy transition,” he added.

At times, mining companies have faced problems with governments on their project frameworks which have led to production cuts and delays in renewing export licenses. Among other things, stability agreements provide miners with the right to extend contracts on the same fiscal and legal terms as in their existing contracts.

A notable example of this is the giant Grasberg copper mine in Indonesia, which was the subject of tense negotiations between the government and mine owner Freeport-McMoRan over an extended period last decade. The resolution included changes to the ownership structure as well as a commitment by Freeport to build a smelter in the country.

Similarly, when Chilean miner Antofagasta and Canadian miner Barrick Gold disputed the legality of the licensing process at Reko Diq in Pakistan, the project was suspended for over a decade, removing a key project from the future supply picture.

A dispute is currently ongoing in Panama between the government and First Quantum over the fate of the Cobre Panama mine, one of the world’s largest operations.

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