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Essential Metals & Mining Insights - January 2021

Industry Top Trends 2021: Metals and Mining

BHP CEO downplays M&A in favor of early-stage exploration partnerships

BHP Group CEO Mike Henry has downplayed the likelihood of acquisitions to grow the company's exposure to "forward-facing" commodities copper and nickel in favor of early-stage partnerships, which experts said is likely to drive further interest around BHP's South Australia Oak Dam discovery.

Henry said BHP had to secure more options in copper and nickel, given future demand from electrification, decarbonization and rising living standards.

Though BHP unit BHP Billiton Nickel West Pty. Ltd. recently bought PJSC Norilsk Nickel Co.'s remaining Australian assets, including the Honeymoon Well nickel project in Western Australia, Henry said BHP's prerequisites of assets needing to be "really attractive, in the places that we like, and for an attractive price ... don't line up that frequently."

BHP will instead look to exploration and early-stage partnering and finding its own new resources, similar to its Oak Dam iron oxide-copper-gold discovery in late 2018, as it targets "gaining a toehold" in early-stage resources in Canada, Mexico and Ecuador.

"We'll look for more of those sorts of opportunities," Henry said.

This week, BHP partnered with Midland Exploration Inc. to advance nickel exploration in Quebec, having previously entered into a joint venture with Luminex Resources Corp. on copper mining concessions in Ecuador and increased its interest in SolGold PLC, which is developing the Cascabel copper-gold property in Ecuador.

BHP is also hunting copper prospects in Mexico with Riverside Resources Inc.

Partnership opportunities

Though BHP has yet to enter into any such early-stage exploration partnerships around Oak Dam, the company is leading the exploration in that part of the Gawler Craton. The third phase of drilling is complete and results are being analyzed.

Henry said BHP does not have a strategy reliant upon acquisitions; rather, its "first focus will be on securing more options through innovation.

"We have a lot of copper and nickel, but some of those resources are lower grade, so to extract and process them economically, we're going to need to come up with more innovative ways of doing so," Henry said.

There is no shortage of explorers chasing Oak Dam's "nearology" play. Matthew Keane, mining resources analyst with financial advisory Argonaut, told S&P Global Market Intelligence that BHP would be likely to back "credible teams" as OZ Minerals Ltd. has with Minotaur Exploration Ltd., among others.

Though majors such as BHP and Rio Tinto have mainly grown through M&A in recent decades, they have become more active with their own exploration of late, and while partnering with juniors is nothing new, Keane said, "They may be looking to accelerate" that strategy.

Funding 70% of a junior's exploration program over five years is generally the time frame for such partnerships, and even funding of up to A$10 million is "chump change" for a company the size of BHP, Keane said.

Keane sees a likelihood of BHP starting to secure partnerships with juniors as Rio Tinto has in Western Australia's Paterson Province around its own Winu copper discovery, which Market Intelligence said this month was the most recent major discovery and the largest in the past five years.

SNL Image
BHP's Olympic Dam in South Australia.
Source: BHP

More large iron oxide-copper-gold ore-styled deposits are also highly likely, given the knowledge of those at Oz Minerals' Carrapateena and Prominent Hill and at BHP's Olympic Dam 65 kilometers from Oak Dam, Keane said.

"The difficulty here is that it looks like these deposits are quite deep. There [have] been a lot of aeromagnetic surveys flown over the whole craton, and a number of geological signatures have been found, but a lot of these are now getting beyond geophysical recognition," Keane said.

Andre Labuschagne, executive chairman of Aeris Resources Ltd., which is joint ventured with Argonaut Resources NL on looking for iron oxide-copper-gold ore systems at the Lake Torrens property 50 kilometers from Oak Dam, said opportunities exist for juniors to partner with bigger players in the Gawler Craton, depending on the size of the targets.

"It depends on the specific projects and the opportunities around those, but there are definitely opportunities to get the bigger companies in those types of plays," Labuschagne told Market Intelligence.