PERTH (miningweekly.com) – Newly appointed CEO of BHP Billiton Andrew Mackenzie has expressed his optimism about the future of mining, telling the Melbourne Mining Club that the industry had an important role to play.
“The world’s population is expected to rise by as much as a third by 2050 to more than nine-billion. And only if we deliver steady, sustainable growth in commodities – from steelmaking, through to metals, energy and energy transfer, to food – can we be sure that by 2030, the global middle class could grow to five-billion, up from two-billion today.
“That is the noble purpose of our trade: to supply the resources that enable economic growth and lift several billion people out of poverty,” Mackenzie said.
He noted that to follow this growth, mining companies would need to adjust their portfolios to more consumption-based commodities, adding that this would be a more straightforward task for BHP, given its diversified portfolio.
“My other reason for optimism is on the supply side. But there is a contradiction here. Investors are concerned about oversupply, yet customers, policymakers, and nongovernmental agency’s fear scarcity.
“Popular opinion has it that our industry is fundamentally unsustainable because the world, they believe, is running out of resources. Popular opinion is wrong.”
Mackenzie said that as the industry’s understanding of the earth’s geology improved, so had its confidence in resource abundance. A basic assessment of the world’s geology suggested that hundreds of years of supply was available, he added, noting that in 1900, the world’s copper reserves were 25-million tons. Today, they were over 500-million tons.
“And yes, we face declining grades, longer haul distances and rising strip ratios; and, therefore, must target deeper deposits. But history shows we will overcome those challenges, just as we have in the past. Over the last century, the average run-of-mine grade for copper has fallen by three-quarters to less than 1%. Yet annual supply has increased from under one-million tons to over 16-million tons.”
Mackenzie stated that human ingenuity could be trusted to find new ways to discover, economically extract, efficiently use, recycle, or substitute natural resources to meet growing demand.
He added that as most commodities now traded on transparent markets, the industry could count on clear price signals to induce the new production required.
“More balanced markets require us to get much sharper on operating and capital productivity to expand margins and increase returns, no matter where prices go. And as customers and consuming nations become more confident that they will receive the supply they require, and policymakers understand that we are not about to run out of raw materials, then the conversation will change for the better.”
Mackenzie noted that if resources were not scarce, society had a choice.
“We do not have to mine or drill everywhere. And we can be more selective in the way we use the capital that is not returned to shareholders. Our industry will only invest where we are welcome, and where we can generate the most value without adverse social and environmental impact – or excessive shareholder risk given the returns on offer.”
He added that while larger, higher-grade deposits held obvious appeal, it could likely be that smaller, lower-grade resources would be developed first, as geology was not the only consideration when making an investment decision.
“The supply to meet demand will come from those jurisdictions that do not have supply cartels nor political arrangements which fail to direct the bulk of the benefits of mineral wealth to their people. The nations that will successfully attract investment are those in which governments offer political and fiscal stability, and where policymakers want to work with us to create conditions for industry to prosper.”
“We have the longest investment cycles in the world and we cannot move our orebodies en masse to other countries. So, when we invest, it is for the very long term,” Mackenzie said.