Daniel Munoz/Reuters
- BHP, the world’s largest miner, is positioning itself amid a global transition away from fossil fuels towards cleaner sources of energy.
- In an exclusive interview with Business Insider, CEO Andrew Mackenzie laid out the company’s rationale for investing in an alternative commodity that could generate a fifth of its profits over the next 100 years.
- "We’re in a place where there is a risk to our business for … peak energy coal and peak oil," Mackenzie said.
Amid climate change, the global shift away from fossil fuels poses a threat to companies that produce these resources. But it also presents equally compelling opportunities to find new growth areas.
That’s the lens through which BHP, the world’s largest miner, is planning for its future. The Melbourne, Australia-based company remains a heavyweight in traditional energy markets like petroleum and coal. But it’s also investing heavily in the market for potash, a derivative of potassium that is largely used on farms as a fertilizer.
According to a Feb. 19 filing, the firm has earmarked $2.7 billion in capital expenditure for potash-mining infrastructure, including the completion of mine shafts it has dug in Saskatchewan, Canada.
BHP’s exploration of the potash market is an example of a low-risk, low-return investment that, if successful, could open the floodgates of profits, according to Andrew Mackenzie, the CEO of BHP.
In his view, the potential runway for returns stretches out over the next century. The company expects the market’s annual demand to grow between 2%-3% over the next decade — a pace that would help it exceed supply by the end of the 2020s.
"This could be a 100-year resource," Mackenzie told Business Insider during a recent interview.
He continued: "At the moment, about 40% of our profits come from iron ore, and 20% each from metallurgical coal, copper, and petroleum. We could replace one of those areas with potash over a few decades with that sort of investment."
The timing would favor BHP as it ponders how to diversify away from fossil fuels and create other revenue streams, Mackenzie said. The potash market would also position the firm to become a prime supplier to Asia’s agrarian regions, where he says soils have been starved of potassium.
Commodity prices across the board are volatile, but the 2015 crash in oil prices was the latest example of a nightmare outcome for miners that dashed head-first into a new opportunity in fossil fuels. In 2011, BHP participated in the gold rush into US shale oil and gas with a $20 billion investment in assets that it eventually sold to BP.
Mackenzie is so pressed by the need to transition away from fossil fuels that he personally advised President Donald Trump that it was possible to be both pro-coal and in support of the Paris Climate Agreement. Trump had promised during his campaign to withdraw the US from the agreement and made the announcement in 2017.
His message to Trump was that the US had the opportunity to lead the creation of cleaner methods of production.
"We’re in a place where there is a risk to our business for peak coal — and not metallurgical coal — but peak energy coal and peak oil," Mackenzie said. "And we need to think about how we diversify. But that isn’t going to happen until the 2030s. And if you handle it well, you could manage the transition."
For Mackenzie’s firm, the transition includes finding alternative streams of revenue that can provide a lifeline as demand for fossil fuels shrinks. For example, he said, the rates at which people are buying electric vehicles — and the speed at which cities are outlining roadmaps to transition away from conventional cars — are quicker than he expected.
"Coal will last forever," MacKenzie said. "But as a growing business, it’s a finite opportunity. And it’s likely to shrink over time. I’d say the same thing with oil."
NOW WATCH: What El Chapo is really like, according to the wife of one his closest henchman
See Also:
- An investment chief at $1 trillion Northern Trust lays out a strategy that’s survived every major market crash, including the Great Depression
- Wall Street is torn over the future of stocks, so we pitted the market’s biggest champion against its most outspoken bear. This is where they differed on 4 main themes.
- GOLDMAN SACHS: The stars have aligned for an elite group of stocks known for their supercharged returns. Here’s how you can get involved before it’s too late.
Source: Business Insider – aoyedele@businessinsider.com (Akin Oyedele)