BHP (ASX:BHP) is positioning itself for a significant shift in its operations, transitioning from a focus on iron ore to copper as the demand for the metal continues to rise due to the global energy transition. The company, which previously derived up to 85 percent of its earnings from iron ore, is now shifting its capital expenditure strategy, planning to allocate roughly half of its budget to copper projects in the coming years.
Despite this strategic pivot, finding high-quality copper deposits remains a challenge. Many promising deposits are located in jurisdictions that present operational and reputational risks. Unlike its competitors, BHP has historically maintained a conservative approach, avoiding riskier locations where political instability, regulatory uncertainty, and governance issues are prevalent. Companies like Glencore and Rio Tinto have engaged in projects in countries such as Kazakhstan, Mongolia, and the Democratic Republic of Congo, while BHP has focused its investments in more stable regions, including Australia, Brazil, Canada, Chile, Peru, and the United States.
BHP’s cautious approach was evident in its failed $79 billion bid for Anglo American in 2023, which was structured to exclude assets in South Africa. However, with major mergers and acquisitions in the mining sector gaining momentum, the company may need to reconsider its stance. Recent discussions between Glencore and Rio Tinto regarding a potential deal underscore the increasing consolidation in the industry. This trend raises the possibility of BHP pursuing a long-speculated acquisition of Freeport-McMoRan, the world’s largest copper miner.
A potential acquisition of Freeport-McMoRan would significantly bolster BHP’s copper production, doubling its output overnight and securing control of four of the five largest copper mines. Even with such an expansion, the combined entity would hold less than 20 percent of the global copper supply, which is unlikely to raise antitrust concerns.
Despite the strategic advantages, one of the main deterrents to acquiring Freeport-McMoRan has been governance concerns surrounding its largest asset, the Grasberg mine in Indonesia. Situated in a remote and politically sensitive region, Grasberg has historically been associated with security challenges, environmental controversies, and disputes over ownership. Mining waste management at the site has also drawn criticism, which could pose reputational risks for BHP, given its past environmental issues at the Ok Tedi mine in Papua New Guinea and the Samarco iron ore project in Brazil.
However, recent developments have reduced some of these risks. In 2018, an agreement was reached between Freeport-McMoRan and the Indonesian government, granting a state-owned enterprise a majority stake in Grasberg. Additionally, incidents of separatist violence in the region have declined in recent years. Freeport-McMoRan has also made strides in improving its corporate governance and environmental practices. The company has been recognized by the World Benchmarking Alliance for its human rights performance, ranking higher than BHP in this area. In 2023, it received the Copper Mark certification, an industry standard for responsible copper production, including approval of its waste disposal methods.
Given the scarcity of high-quality copper assets, BHP may find that the opportunity to acquire a company like Freeport-McMoRan is a once-in-a-generation event. With the increasing demand for copper driven by the energy transition and major mining consolidation on the horizon, the conditions may be aligning for BHP to make a decisive move in securing its future in the copper industry.
The above references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a licensed professional for investment advice. The author is not an insider or shareholder of any of the companies mentioned above.
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