GREENHORNS: BHP Bilks Feds for $100m in carbon guise


BHP Group (NYSE: BHP), formerly BHP Billiton, is the world’s largest natural resources company. Its very large, very successful global presence includes interests in petroleum, coal (both metallurgy and energy), nickel, copper, iron ore and uranium.

Operating at the epicenter of the industry that will be hardest hit by climate change, it pays a 7% dividend on a $160 million market cap and tens of billions of annual operating expenses ($34.5 billion in 2021) , it has significant financial weight to throw. As the economic landscape shifts, it’s worth watching the way it throws that weight around.

Map cut out of BHP’s 2021 annual report. Orange dots are active operations.

BHP is not attempting to minimize its role in carbon pollution or whitewash the impact that a consistently warmer biosphere could have on its operations themselves or on the people who work there. After all, BHP is a mining company, and mining companies are full of engineers, and engineers are compulsive problem solvers.

BHP’s engineers have done the math and know, down to the ton, how much carbon the company’s operations contribute to global climate change. They also do a much better job of calculating and reporting downstream (immediate) emissions than many of their peers. Climate plans and targets take up a significant part of BHP’s annual report and are set out in more detail in a stand-alone climate strategy document. BHP is very open about its role in global emissions, and while that may seem modern and classy, ​​the truth is that it doesn’t have much of a choice.

Forward-looking planning is in BHP’s corporate DNA. It’s nearly 140 years old and has a diversified, relevant portfolio of very profitable assets that keep it consistently at the top of its industry, and it hasn’t gotten this far by simply digging a hole once it hit Paydirt , and then figured out what to do next when the grade got too low. Every tonne that a miner ships is one less tonne that is in the ground, so a company interested in its future is bound to invest in or develop new reserves and diversify them into a product mix that will be salable for years to come will be. BHP has a handle on its current and future carbon footprint because it towers over the mix of materials that the rest of the industrial world will need in the decades to come when it comes to reducing emissions and adapting to a warmer earth with more people in it.

That’s how it deserves. And that’s why it’s investing heavily in Canadian potash.

Meet George Jansen: Kali is the future of BHP

Arthur Radebaugh’s Sunday comic Closer Than We Think ran from 1958 to 1963.

The Jansen potash deposit, 140 miles east of Saskatoon, Saskatchewan, is Canada’s largest undeveloped potash deposit. It is a section of the Williston Basin, a vast evaporite formation beginning at a depth of about 900 to 1100 meters and covering hundreds of thousands of square kilometers.

Potash is an important component of the high-quality fertilizer used in modern agriculture. Its price has increased lately because there is only a limited amount of it and a large part of it comes from Russia.

Potash table excised from Natural Resources Canada.

As international trade with Russia becomes increasingly problematic, Belarus is the second largest exporter outside of Canada. Belaruskali, the state-owned company responsible for potash production, is often plagued by labor unrest and is inevitably overshadowed by Russian influence. Canada is a safe bet, home to vast reserves and home to all the skilled labor a mining company could ever need. BHP calculates total reserves at Jansen as 6.5 billion tonnes grading 25.6% K2O. At the rate the company plans to mine and ship it, that’s 94 years’ worth of reserves. It would be conceivable to expand the project further.

BHP owns 100% of Jansen and sees it as a definite and important part of the company’s future. The narrative chosen also places its massive nickel and copper operations in prime growth positions during this global shift to renewable energy and mass electrification. It has taken steps to divest its energy coal assets and often uses the word “transition” when describing its oil and gas assets needed to “provide the energy needed for the energy transition to come.” . The oil and gas assets it owns and operates are very valuable in the present, but potash is the future.

From 2027, Jansen is expected to produce 4.35 million tons of potash per year. That would have accounted for just under 20% of all Canadian volume in 2022. High potash prices are likely to divert more tonnage from existing producers by the time Jansen starts shipping, but BHP isn’t worried about price sustainability. Population growth and a finite amount of arable land, some of which may not be available for long on a warming planet, dictate that the greatest possible production must be squeezed out of every available patch.

BHP has made its intention to further develop this important asset very clear and committed to creating very low-carbon emissions, which is in line with its company-wide transition to a low-carbon future. But the real trick is how they squeezed hundreds of millions of dollars out of the Canadian government in the process.

Schematic from a submission for the Strategic Innovation Fund grant program.
We will launch phase 2 of Sustain-O-Farm for $50 million. Phase 1 was this drawing.

François-Philippe Champagne, the Liberal government’s Minister for Innovation, Science and Industry, took to the podium at a news conference in Saskatoon Monday, looking pleased. He was up there with Mike Henry; the actual, real CEO of BHP who gave the country what it needed most. jobs. Green jobs! Gone are the days of Canadians breathing diesel fumes working in literal salt mines. Pretty soon. They haven’t said when exactly, it’s all still in development and there isn’t much in terms of specifics or details, but that suits the ‘innovations’ minister well.

Innovation is practically a fetish with this administration, whose Strategic Innovation Fund has so far contributed $5.2 billion to all sorts of fun “innovation ecosystems.” There’s no indication that taxpayers will share in the intellectual property resulting from this innovation, but so what? Distributing a little R&D money keeps the crops thriving locally, so the country can potentially share in the thriving.

But it’s not like BHP is opening a hundred-year-old potash mine elsewhere instead. Resources are where they are, and BHP can’t move them like an NFL team looking to use the city to build a new stadium. If Champagne had his way, he’d build statues of the BHP executives executing a $7.5 billion construction in Saskatchewan as if they could have spent less to complete it, and as if they ever will spend it somewhere else. BHP’s after-tax profit in 2021 alone was $13.4 billion, and the company has clearly calculated that its oil and coal projects’ days are numbered. The government doesn’t have to give BHP $100 million to cut its carbon emissions. It can simply tell BHP to reduce its carbon emissions because it makes the rules. Nominally.

Monday’s dog and pony show made it seem like the money was secondary. The event was effectively a promotion for BHP, who are in charge and plan to be in charge for at least the next 94 years.

The department spent practically $100 million in taxpayers’ money just to be a part of the action. Just so champagne could stand up there next to BP and drink it all up. He wore the bright, honest smile that politicians get when they’re in the midst of a high-profile success. BHP executives, on the other hand, wore the muted, satisfied grins of Poker Sharps, who stumbled upon a tourist working his way through a roll of someone else’s money at a high-limit table, only to witness it.

Information for this briefing was found through Sedar and the sources cited. The author has no securities or affiliations with this organization. No buy or sell recommendation. Always conduct additional research and consult a professional before purchasing any security. The author does not own any licenses.


Comments are closed.