The mining giant has snapped up Russian giant Norilsk’s nickel assets as it looks to bolster its production of battery metals.
It is an unlikely combination but when you mix an environmental accident in Russia with a mining giant’s hunt for expansion opportunities, and toss in a whiff of climate change, an economic win can be seen for Western Australia.
Connecting those seemingly unrelated events is a plan to create a technology-metals hub based on the state’s mineral resources, especially lithium, rare earths and nickel.
The COVID-19 pandemic and a global oversupply of lithium has bruised the tech-metals plan, which is focused on the production of material used in making batteries for electric vehicles (EVs) but could go much further than that.
The first incident that has reawakened WA’s tech-metals push occurred in the far north of Russia where an estimated 20,000 tonnes of diesel fuel spilled into Ambarnaya River.
The company responsible for the spill was Norilsk Nickel, one of Russia’s biggest miners and, until recently, the owner of a number of assets in WA.
BHP, the mining giant on the hunt for expansion opportunities, has taken advantage of Norilsk’s problems at home by acquiring the Russian company’s assets in WA, including the big but undeveloped Honeymoon Well nickel deposit.
The timing of what happened is important, as is the alleged cause of the diesel spill. First news of Norilsk’s accident reached the outside world in early June, starting with a Bloomberg news service story headlined: “Huge spill stains Arctic and climate change could be the cause”.
According to a Norilsk spokesman, the diesel fuel escaped holding tanks after they shifted on their foundations because high temperatures caused by climate change melted the permafrost.
A number of senior Norilsk executives have lost their jobs after personal criticism from Russian President Vladimir Putin.
The company also faces a repair bill reported to be as high as $US1.4 billion ($2.2 billion). It was with those background developments in Russia that BHP pounced, making Norilsk an offer to buy Honeymoon Well.
The transaction settled on June 19, about two weeks after the diesel spill and Mr Putin’s public lashing of Norilsk.
BHP has not revealed the price paid for its new WA nickel assets but it is reported to have been around $US30 million, a modest outlay, but for Norilsk in crisis mode all cash is welcome.
More importantly for WA, the transfer of Honeymoon Well to BHP cements control of a vast area of nickel-rich territory in the hands of a company which is more interested in nickel as a battery metal and less in its historic use in making stainless steel.
What BHP has just done is signal that nickel, and its copper-mining assets, are its preferred entry points into the environmentally friendly world of battery metals.
From the status of an unwanted business, which came with BHP’s 2005 takeover of Western Mining Corporation, nickel has emerged as a significant growth option for BHP given its world-beating combination nickel mines and processing facilities that go all the way to producing high-value, battery-grade nickel.
The acquisition of Honeymoon Well is not the only recent nickel deal by BHP in WA, with plans being developed for a return to underground mining at Leinster, along with expansion of production capacity at its Kwinana metal refinery and a number of interesting exploration assets that include the Seahorse project east of Kalgoorlie.
But it’s the environmental angle that is particularly important because, at the same time BHP is boosting its exposure to battery metals, it is on the verge of selling down its thermal coal assets.
A sales process is reported to have started with the appointment of JP Morgan, an investment bank, to handle BHP’s exit from coal used in the production of electricity but not BHP’s metallurgical coal, which is used to make steel.
More nickel for batteries and less coal to be burned in power stations is a significant shift for BHP, which is trying to reshape its image as international pressure builds on all mining companies to take greater care of the environment.
The importance of being seen as a good corporate citizen was highlighted in a recent J.P. Morgan research report into climate change and how it is affecting investment and “divestment” decisions by miners.
The bank’s report, which was not specifically linked to the BHP coal sale, is remarkably timely given that JP Morgan is reportedly the bank charged with selling the company’s coal assets.
It is also a warning to all mining companies about the growing environmental vigilance of governments, private campaigners, and investors.
JP Morgan reckons climate issues such as managing greenhouse gas emissions is reshaping investment portfolios, with Rio Tinto’s exit from thermal coal a “turning point”, which put pressure on other diversified miners, such as BHP, to quit the business.
As well as the reported sale of its thermal coal business, BHP is also under pressure to trim its exposure to another fossil fuel, oil.
The problem for BHP is that if it sells thermal coal and cuts oil exposure it becomes a business overly reliant on WA iron ore, like Rio Tinto.
The reshaping of all big miners in a more environmentally focussed world is not easy but it is creating opportunities in new areas for growth with nickel, a business once deeply unloved at BHP, poised for stardom as a major supplier of battery-grade material.
For WA, the changing view of BHP towards nickel and the environmental problems of Norilsk in Russia have combined with demand for greater use of batteries to give the state’s tech-metals plan a much-needed boost at a time when other investments are hard to find.
