BHP expects that a diversified commodity portfolio combined with increased access to technology will drive the company’s balance sheet as it grapples with growing global uncertainty.
The company’s chief financial officer Peter Beaven addressed shareholder concerns about the effect of global trade tensions on operations and which projects hold the greatest potential for BHP over the medium and long term.
“We are more cautious than a year ago, the trade tensions are not helping, but also the business cycle which has been strong around the world over the last few years is starting to show its age,” Beaven said.
While recognising the strength of the company’s bottom line has returned a record dividend to shareholders and improved its profits in the 2019 financial year, Beaven admitted BHP needed to continue to “reinvigorate” itself as it looks to the future.
This implies a move from extracting the maximum out of its existing assets and picking up that “low hanging fruit”, to an enhanced focus on new projects.
“We’ve had to reinvigorate with a series of new ways of getting that out so we have a transformation agenda and that says we should turn ourselves into a world class manufacturing business, we’ve made good progress, but we aren’t wholly in that space,” Beaven said.
“There is still another set of projects to invest in, six of those are underway and range across copper, oil, potash and a replacement iron ore mine and they are all on time and budget. Beyond that we have another suit of operations we could trigger.”
Beaven emphasised the growing appeal of nickel and potash in particular as commodities of the future, going as far as saying that nickel could become a “material business for BHP.”
“Nickel (experienced) quite a turnaround, a few years ago it was a difficult business to say the least and realistically, it was facing shut down,” he admitted.
Beaven pointed to a combination of factors which has now transformed the outlook BHP has for nickel.
“One is that management team went to work and did first class job in changing the outlook for the business by reducing costs, finding a much lower capital way to develop the next set of mines underway today,” he said.
“What has also changed is that nickel itself is something that is incredibly important to the world. Today, it goes into stainless steel, but in the future all electric vehicles (EV) have batteries and the technology in batteries is changing.”
Referencing the battery required for EVs, which are made up of eight parts nickel, one part cobalt and one part lithium, Beaven pointed towards a rise in demand for the commodity and therefore price from 2025 onwards.
This coincides with BHP’s expectations of a rise in potash use as the global population rises and arable land decreases in response to the environmental effects of climate change.
“Whatever land that is available today needs to be more productive, in order to make it so, one important influence is fertiliser and one of most important fertilisers is potash,” Beaven said.
“We think the market is big and growing and we know that there is a margin available for us to be well placed, given our low-cost assets.”
BHP’s CFO also admitted that despite the “disappointing” recent performance of the company’s Olympic Dam site, the company intends to persist with the multi-mineral project.
“We need to get more stability, so we have invested a bunch of money in, rebuilt the smelter, invested in more money, and we will continue to do that. It’s a slow process, you have to grind out that maintenance deficit that we admittedly allowed to build up,” he said.
“We need to get more tonnes out of it and we need to get that through better grade, we are now developing into the southern mining area that has got better grade, that by itself will produce more tonnes.”