The days of giant miners like BHP Billiton, Rio Tinto, and Glencore Plc making significant investments in oil and gas while only making half-hearted divestments to please green-leaning investors are over. Mining corporations are being driven to align capital investment with their carbon reduction targets, with activist and institutional investors sometimes demanding the sale of entire fossil fuel portfolios, as ESG investing gains traction and climate change goals loom.
Rio Tinto did the seemingly inconceivable three years ago when it sold its entire thermal coal portfolio in Queensland, Australia. Rio sold its Coal & Allied business for approximately $1.7 billion to Glencore and its investment in the Kestrel underground coal mine for $2.25 billion to a consortium led by private equity firm EMR Capital and PT Adaro Energy Tbk. Rio became the only major worldwide firm with no coal assets once the mine was sold.
Glencore’s approach to fossil fuel assets has been to keep and gradually “manage down” the assets toward the net-zero horizon in 2050, as the world’s largest mining business. On the other hand, BHP, the world’s second-largest mining corporation, has been more adamant in its opposition to oil and gas, despite the fact that, ironically, some activist investors want it to slow down.
BHP stated in August that it would transfer its oil and gas assets to a joint venture with Woodside, a clear indicator that the “Big Australian” is exiting the carbon-based fuel business. Because obtaining bank finance for the new venture would have been difficult, this was an all-stock deal.
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BHP also most notably sold a stake in the Cerrejon coal mine in Colombia to Glencore in June, as a part of selling the thermal coal holdings by the company. Meanwhile, while it continues its search for a buyer, the business has written down the value of its Mt Arthur mine in Australia’s Hunter Valley. Elliott Management has long advocated for a wholesale petroleum demerger, but Market Forces, a subsidiary of Friends of the Earth and one of Australia’s most vocal agitators, has taken a surprising stance:
“We would prefer to see BHP keep those [petroleum] assets and manage them down, including their CAPEX decision-making in a way consistent with the Paris targets and attaining net-zero by 2050,” the group stated.
Another compelling argument for mining companies to abandon oil and focus on their core competencies is that metals are expected to become the new oil.
As metal and commodity prices have soared this year, mining companies have made record profits.
Metals Have Replaced Oil As The World’s Most Valuable Resource
The following commodity supercycle is being driven by the energy revolution, with enormous opportunities for technology makers, energy traders, and investors. Indeed, BloombergNEF, a new energy research firm, forecasts that the worldwide transformation would cost $173 trillion in energy supply and infrastructure investments over the next three decades, with renewable energy estimated to meet 85% of our energy needs by 2050.
Clean energy systems need metals more as compared to fossil fuel-based technology. As per a recent Eurasia Review study, in a net-zero emissions situation, prices for copper, nickel, cobalt, and lithium could rise very high, historical peaks in fact, that too for a never like before, consistent period, totaling to a value of production rising more than four times for the period 2021-2040, and even rivaling crude oil production value.
Electric and fuel cell vehicles are expected to displace 21 million barrels of oil per day in demand by 2050, as per a report. The metals demand peak might lead to a more than four times rise in the value of metals production in the net-zero emissions situation, totaling $13 trillion accumulated over the next 2 decades for the four metals alone.
This might be comparable to the predicted value of oil production in a net-zero emissions scenario for the same period, making the four metals macro-relevant for inflation, trade, and output, as well as providing considerable windfalls to commodity producers.