News article on BHP s View on Copper Demand and the EV Market

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1 Tuesday 22nd November 2017 News article on BHP s View on Copper Demand and the EV Market Hot Chili Limited (ASX Code: HCH) is pleased to provide a copy of an article published in Mining News on 22nd November It discusses BHP s view on the Electric Vehicle market, and the Company s exposure to the potential outcomes of electric vehicles though its copper business. BHP predicts the global EV fleet will expand from about 1 million units to about 140 million units in 2035, meaning an additional 8.5 million tonnes of genuine new demand will be created annually, equal to about one-third of current total refined copper demand. The article says that major demand shifts for the copper dwarf anything that could come BHP s way from a nickel price/demand scenario. So it is a case of goodbye nickel, eventually, and hello copper. For more information please contact: Christian Easterday Managing Director : christian@hotchili.net.au or visit Hot Chili s website at 1

2 Copper bests nickel for BHP in EV revolution BHP chief executive Andrew Mackenzie didn t mince his words when he was asked after last week s annual meeting if Nickel West was back in the fold given the investment underway in the business unit to plug it in to the lithium-ion battery revolution, writes Barry FitzGerald. Barry Fitzgerald 22 Nov :02 Feature Nickel West We have to have to invest enough to make sure it s an attractive business... but no more than that. Ultimately there has to be another owner for the Nickel West business and it wouldn t be us. We are just finding the right time in the market to offload Nickel West, Mackenzie said. 2

3 BHP acquired the Nickel West business of mines and the associated Kalgoorlie smelter and Kwinana refinery on its 2005 takeover of WMC. It has tried to sell the business in the past and failed, and it was not good enough to be shunted off in to South32 in BHP would have been forgiven for calling it quits any number of times in the recent horror years for the nickel market. And it probably would have called it quits if it didn t mean incurring a $1 billion closure and clean-up bill. Instead, Nickel West was given time to build a longer-life business proposition through productivity gains, exploration success, and technical innovation. And more recently, there was the decision to spend US$43 million on a nickel sulphate plant to meet booming demand for the intermediate product from battery makers. Match all that up to this year s 20% rebound in nickel prices from last year s miserable $4.35/lb due in part to the growing understanding that nickel is a key metal in the dominant lithium-ion battery chemistries and there is little wonder Mackenzie was quizzed on whether Nickel West was back in the fold along with copper, iron ore, coal and petroleum. But as he made clear, Nickel West was non-core when the nickel market was bleak, and remains non-core, even if things are looking up for the business at so many levels, the stand out being the rise of lithium-ion batteries as a fast growing segment of nickel demand. It s non-core because even at the improved prices, Nickel West currently generates sales of less than $1 billion. And while there will be improved margins from going down the nickel sulphate route, it will remain an inconsequential business for the world s biggest miner at consensus long-term price forecasts. So it will be sold off when a buyer can be found. But that is not to say BHP has turned its back on the electric vehicle (EV) and renewable energy storage revolution which, for the time being at least, is underpinned by lithium-ion batteries. 3

4 BHP s preferred exposure to the energy storage revolution is through copper. We have huge exposure to the potential outcomes of things like electric vehicles through our copper business, Mackenzie said. There are some compelling numbers behind BHP s conviction that its big and growing copper footprint is the best way for it to play the lithium-ion battery thematic while others chase lithium, graphite, cobalt, manganese, nickel, and other battery materials. Its vice president of marketing minerals and former Merrill Lynch analyst Vicky Binns ran through the numbers in October last year in a blog posted on BHP s website. Turns out that the average conventional internal combustion engine (ICE) vehicle contains about 20kgs of copper while the average hybrid vehicle uses about 40kgs. Go fully electric, and the copper requirement grows to a hefty 80kgs. On BHP predictions the global EV fleet will expand from about 1 million units to about 140 million units in 2035, meaning an additional 8.5 million tonnes of genuine new demand (after subtracting the copper that would have been used in the ICEs displaced by EVs) will be created annually, equal to about one-third of current total refined copper demand. And on the expectation that the copper intensity of electric vehicles will grow to 105kgs over time, the demand uplift for copper rises to almost 12Mt or more than half of the current global market for refined copper. BHP expects to produce about 1.79Mt of copper in FY2018, worth some $12 billion at current prices. Major demand shifts for the metal dwarf anything that could come BHP s way from a nickel price/demand scenario, even one turbocharged by the EV revolution. So it is a case of goodbye nickel, eventually, and hello copper. The group s copper growth story it has six potential expansion projects on the books is set 4

5 to be fleshed out at BHP s investor day and an Olympic Dam visit on November. Deutsche previewed the Olympic Dam visit in a research note on Tuesday, saying it was including a $1.5 billion expansion from 220,000 tonnes of copper annually to 280,000tpa, and eventually 330,000tpa by But it does not see a case for the bigger expansion to 450, ,000tpa by FY2027 from the development of the much studied heap leach operation. It reckons the heap leach option is a low return and high risk option which could cost $5 billion. It was not that long ago that a $5 billion project commitment was a snack for BHP. But iron ore is no longer $180 a tonne, and oil is well short of $100 a barrel, meaning capital constraint remains the order of the day. 5