Rio Tinto and BHP shareholders are about to be awash in cash, again but the two big diversified miners will be looking beyond the current iron ore price that is flooding them with that cash towards the more threatening future moving rapidly towards them.
Beyond this decade the steel-intensity of China’s economy will start to fall and its recycling of scrap will become a bigger source of its supply. While BHP does have a number of big new projects, in which it has invested heavily, that will come online over the next couple of years, it would be very aware that petroleum will increasingly bring with it black marks from ESG investors; that it does have a limited future and, while it is high-margin, it generates relatively low returns on capital.
There are “vulture” funds looking to acquire petroleum assets offloaded by the major companies -- “Big Oil” has sold the best part of $US30 billion of assets in the past three years and is looking to offload a similar amount over the next few years – or BHP could demerge a business valued at up to $US15 billion in an environment where OPEC appears to have finally regained some semblance of control over the supply-demand equation and prices.
Similarly Rio’s Jadar project would give it one of the world’s largest new lithium projects in an environment where, like nickel, lithium stands to benefit greatly from decarbonisation and the demand for lithium-ion batteries in particular. Jadar’s hurdle is to gain Serbian government and community support and approvals.
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