Mike Henry, chief executive officer of BHP Group Ltd., at the company's global headquarters in Melbourne, Australia, on Tuesday, Feb. 18, 2025. BHP said first-half profit slumped 23% as China’s faltering economy dampened demand for iron ore, prompting the miner to cut its interim dividend to an eight-year low. Photographer: Carla Gottgens/Bloomberg
IN times of plenty, you can afford to be picky. When scarcity stalks the land, you may have to lower your standards.
That’s a lesson for BHP Group Ltd as it scours the globe looking for ways to fill a looming deficit of copper, with the energy transition stoking demand for the conductive metal.
The world’s biggest mining company is in the process of turning itself into a copper miner from an iron ore one.
Five years ago, iron ore accounted for as much as 85% of earnings and 39% of capital spending. In the years ahead, that will flip. It plans to dedicate roughly half of its capital expenditure to copper, pushing iron ore below a quarter of the total.
The problem is the dearth of good deposits to spend all that money on – especially when so many of them are locked up in unattractive jurisdictions. That’s particularly difficult for BHP.
Despite having arguably the biggest war chest, it has a reputation for being the least buccaneering of the large miners.
Glencore Plc has major units in exotic locations such as Kazakhstan and the Democratic Republic of Congo, and Rio Tinto Group is developing copper projects in Mongolia and iron ore in Guinea.
BHP sticks to a more staid and stable set of jurisdictions: Australia, Brazil, Canada, Chile, Peru and the United States.
When it made a US$49bil failed bid for Anglo American Plc last year, it was carefully structured to excise any units from the target’s historic home market, South Africa
Heavy metal
BHP and Freeport are the world’s two biggest copper miners. There are advantages to that. Dicey politics can be both an operational and reputational risk.
Rio Tinto’s 28-year quest to develop its Guinean iron ore mine has cost it the careers of several top executives and millions to settle bribery charges.
Glencore paid US$1.1bil in 2022 to settle bribery and market-manipulation charges, while Switzerland last month jailed the former chief operating officer of commodity trader Trafigura Beheer BV in a bribery case.
The downside is that the world’s best mineral resources didn’t conveniently place themselves in the most congenial addresses.
That consideration will encourage any miner to look well beyond its backyard.
Even BHP has been venturing outside of its comfort zone of late.
In Argentina – a country long considered off-limits to major miners due to its unattractive political and legal backdrop – it last month completed a US$2bil deal to buy its way into half of the Filo del Sol copper project alongside Lundin Mining Corp.
That’s been helped by a more favourable set of mining laws under libertarian President Javier Milei, but still represents a significant long-term wager on a jurisdiction synonymous with ever-changing policy and economic conditions.
Gotta catch ‘em all
A BHP-Freeport deal would bring together four of the five biggest copper mines. BHP can afford to think bigger, though. Right now, major mining merger and acquisition is in the air.
Glencore and Rio Tinto have held talks about a deal that would likely be the largest in industry history.
That suggests the moment is ripe for a combination BHP has long contemplated, but always shied away from: A bid for Freeport-McMoRan Inc, the biggest copper miner of all.
Such a tie-up would double BHP’s production of the red metal overnight and give it four of the five biggest copper mines, but still leave it with less than 20% of global mined supply, well below levels that should trigger competition concerns.
Chief executive officer Mike Henry (pic) says he’s entirely focused on growing BHP’s existing mines following the failure of the Anglo American bid, and presented a chart at half-year results last week showing why organic growth promises better returns than takeovers.
But if you replicate BHP’s own numbers, it’s clear that analysis downplays how financially attractive Freeport’s far bigger deposits are.
Cheap at the price
Freeport isn’t just the biggest copper miner. Its metal is competitive with BHP’s plans for smaller-scale organic growth, too.
The downside of any such deal has always been the whiff of sketchy governance that hangs around Grasberg, Freeport’s biggest mine.
Located high in the remote mountains of Indonesia’s half of New Guinea, it’s situated in a region that has long been synonymous with clashes between separatist groups and Jakarta’s security forces, many of the latter funded by Grasberg’s owners as site protection.
On top of that, mining waste is dumped into rivers flowing down toward the sea – not a good look for BHP, which has been plagued over the years by mismanaged mine tailings at its former Ok Tedi copper-gold mine over the border in Papua New Guinea, and the Samarco iron ore project in Brazil.
Those issues are enough to give a cautious miner pause.
But the political risks around Grasberg have diminished of late.
Years of tense negotiations between Freeport and Jakarta concluded in 2018, giving a state-owned company a majority stake and reducing the risk of expropriation.
It’s been nearly five years since separatist violence claimed a life within Grasberg’s immense operational area, a region roughly the size of Rhode Island.
Freeport has also worked to turn around its poor reputation.
These days, it scores highly (better than BHP, in fact) in a ranking of resource companies’ human rights performance by the World Benchmarking Alliance, a corporate responsibility non-profit.
In 2023, Freeport and Grasberg were awarded the Copper Mark, an industry label intended to promote responsibly-sourced metal that gave the tick of approval to Grasberg’s disposal methods.
The world’s greatest mineral deposits can be exploited for decades or even centuries, but the opportunity to buy them only comes up once in a generation.
For BHP, that moment may finally have arrived. Henry would do well to strike while the copper is hot. — Bloomberg
David Fickling is a Bloomberg Opinion columnist covering climate change and energy. The views expressed here are the writer’s own.
