BHP pivots toward ‘future-facing’ commodities with Saskatchewan potash project

Mike Henry, Chief Executive Officer of BHP, in Saskatoon, on June 13.Heywood Yu/The Globe and Mail

Chief Bryon Bitternose was driving north across the Saskatchewan prairie this week toward two white towers that pierce the landscape – twin elevator shafts that mark the site of what will soon be the world’s largest potash mine. He took a phone call and started laughing.

The source of his amusement? Being asked to sketch the George Gordon First Nation’s history with Melbourne-based global commodities giant BHP Group Ltd. BHP-N, owner of the Jansen mine taking shape near his reserve. Mr. Bitternose chuckled as he said, “The relationship didn’t start real well. We first met in court.”

At that initial encounter, back in 2012, the First Nation sued BHP, the province and the federal government for $10-billion. George Gordon leaders said they were not consulted when regulators approved the miner’s purchase of leases on 10,000 square kilometres of resource-rich property. They wanted a share of the project. In 2020, Saskatchewan’s highest court dismissed the suit.

Mr. Bitternose joined the band council and was named chief six years after the lawsuit was launched. On his watch, the focus shifted from litigation to negotiation. The band opted to put a priority on securing jobs for a community plagued by chronic unemployment, at a mine designed to supply 25 per cent of the world’s potash.

Mr. Bitternose can laugh now because by the time BHP announced plans last August to move forward with Jansen – a decision 10 years in the making – George Gordon leaders had reset relations at a reserve with 3,400 residents.

Ottawa backs $400-million tech investment in BHP Saskatchewan mine

For BHP, the launch of Jansen comes after a punishing decade and a half. Commodity prices plunged after the financial crisis, including oil in 2014 and 2015. The company also suffered a stinging reversal in Saskatchewan in 2010 when Ottawa rejected its massive and hostile US$38.6-billion takeover bid for Potash Corp. of Saskatchewan, the former provincial Crown corporation.

Since those setbacks, and accelerating under Canadian-born chief executive officer Mike Henry, who took over in 2020, BHP has been attempting a fundamental pivot out of oil and other legacy commodities, and toward inputs for the greener economy of the future, including potash.

For Mr. Bitternose’s First Nation, shifting from courtroom adversary to business partner with BHP “has been difficult, there’s a lack of trust,” he said. Mr. Bitternose pointed out that George Gordon reserve closed Canada’s last federally-funded residential school in 1996. A lot of resentment lingers. “What I keep telling people is there’s nothing better than waking up in the morning knowing you’ve got a good job.”

The message resonated. Today, Mr. Bitternose estimates 90 band members work at Jansen. They hold well-paid jobs in construction, security and food services. The band co-founded a company that runs buses carrying Jansen’s 3,000 employees to and from Saskatoon and Regina on their days off.

To be ready for the day when construction is complete and the mine goes into operation – scheduled for 2026 – the George Gordon council has hired tutors to teach engineering and trade skills to the reserve’s Grade 9, 10 and 11 students, along with pre-employment skills to adults.

“I’m really excited at the opportunities for our people,” said Mr. Bitternose, a retired teacher. “I just wish I were younger.”

Mr. Henry said it’s significant that BHP can invest anywhere in the world, and chose to make the biggest ever capital commitment to Saskatchewan.Heywood Yu/The Globe and Mail

For Mr. Henry, repairing a fractured relationship with First Nations is essential to the miner’s corporate mission in Saskatchewan, and around the globe. The native of Esquimalt, B.C. – his parents were in the Canadian navy – landed the top job at the world’s largest mining company in January, 2020. Since then, 56-year-old has remade BHP, with an eye to transforming the bottom line and the future.

Over the past 10 months, BHP exited oil and gas through a US$20-billion spinout of assets to Australia’s Woodside Energy Group Ltd. In a carefully choreographed shift, it has also entered the fertilizer industry by committing to Jansen. As it leaves behind controversial fossil fuels, the focus is entirely on what Mr. Henry calls “future-facing commodities” – the copper, iron ore, nickel and potash essential to a growing, but decarbonized, global economy.

Mr. Henry, a University of British Columbia chemistry grad, applies a disciplined, scientific approach to making multibillion-dollar strategic decisions that play out over a generation – fully developing the Jansen mine will take at least another 15 years.

Over an interview in Saskatoon, Mr. Henry outlined a four-step process to running a global miner with more than 80,000 employees. There are two basic components, rooted in numbers. The company strives for operational excellence and thoughtful allocation of capital, both results that are relatively easy to measure.

Canada to invest millions to cut emissions at BHP potash mine, source says

The softer side of leadership shows in Mr. Henry’s third guiding principle – he bases decisions on what he calls “social values.” By looking beyond profits to the goal of creating value for all stakeholders, including communities such as George Gordon, BHP establishes the social licence needed to build and operate its massive mines. The CEO’s fourth priority is building the BHP of the future, finding the next Jansen-scale project through exploration or acquisition.

Mr. Henry expresses complex ideas in simple terms. He explained the shift out of oil and into potash with a few key figures. BHP’s energy business generated roughly US$3-billion in annual operating profits – earnings before interest, taxes, depreciation and amortization (EBITDA). But the company constantly needed to spend money to acquire new oil reserves. And, over time, demand for fossil fuels is expected to drop, as countries combat climate change.

Value of the miner’s divisions in 2019 and 2022

the globe and mail, Source: RBC Capital Markets;

Goldman Sachs

Value of the miner’s divisions in 2019 and 2022

the globe and mail, Source: RBC Capital Markets;

Goldman Sachs

Value of the miner’s divisions in 2019 and 2022

the globe and mail, Source: RBC Capital Markets; Goldman Sachs

The Jansen mine, once running, will make more money than the oil division. Its projected EBITDA is US$4-billion-plus. It also requires relatively small additional investment over its projected 100-year lifespan. And demand for fertilizer is forecast to soar, as farmers coax more crops from less arable land to feed the planet’s growing population.

The potash project fits BHP’s sweet spot: Own the world’s largest, lowest-cost properties for commodities with rising long-term demand, and exploit them safely and efficiently.

If the economics are this compelling, why did it take the company 10 years to commit to the project? Mr. Henry answers with a history lesson.

Early in the past decade, BHP wrote off more than US$12-billion on ill-timed acquisitions, including a US$20-billion foray into U.S. shale gas. And after overpaying on takeovers, the miner lacked focus. “The company was too thinly spread, too sprawling, and important projects weren’t getting the attention they deserved,” Mr. Henry said. “We needed to win back investors’ faith.”

By selling assets and improving operations at its largest mines, BHP has turned in strong results. In 2021, it posted a record US$17.1-billion profit. When the company completed the sale of oil assets to Woodside in early June, analyst Alexander Pearce at BMO Capital Markets said: “As the dust settles on the carve out, we think BHP offers investors a great combination of above average returns and exposure to large, low cost assets – a key attraction in an inflationary environment.”

But the long delay in launching Jansen also reflects BHP’s troubled track record in Canada. In 2010, the company made its hostile run at Potash Corp., now part of Calgary-based Nutrien Ltd.

The provincial government fought the takeover. Then-premier Brad Wall slammed the Australian miner for treating Canada as a “branch plant.” The deal died when Conservative Stephen Harper’s federal government – which later allowed a state-backed Chinese energy company to acquire Calgary-based Nexen Inc. – blocked BHP’s bid on the grounds it offered no net benefit to Canada.

Political opposition was a wake-up call for BHP, Mr. Henry said. Its leaders previously believed they were perceived as local players, respected for building a diamond mine near Yellowknife and copper mine in British Columbia.

BHP exiting oil shows how CEO sees investors reacting to climate risks

To rebuild relationships, BHP expanded offices in Saskatoon and Toronto, and began racking up frequent flyer miles. Mr. Henry has visited Saskatchewan five times in recent years. The company’s entire board visited the Jansen site this week, a tour that included sleeping over in the mine’s spartan staff accommodations.

Over dinner, Mr. Henry said it’s significant that BHP can invest anywhere in the world, and chose to make the biggest capital commitment in its 137-year history to Saskatchewan. “The Jansen investment is a vote of confidence in Canada,” he said. “Compared with other countries, Canada is a place where we can get things done.”

Two federal cabinet ministers – François-Philippe Champagne, Minister of Innovation, Science and Industry, and Marie-Claude Bibeau, Minister of Agriculture and Agri-Food – were on hand last Monday when Mr. Henry announced plans to spend $400-million on technology such as electric vehicles that will make Jansen the world’s greenest potash mine. The commitment included a $100-million contribution from Ottawa.

A decade after being told their company offered no net benefit to Canada, BHP executives stood next to Mr. Champagne as he said “BHP is the poster child” for an environmentally-friendly mining industry.

BHP Billiton’s Jansen mine shaft under construction. BHP has pledged that 20 per cent of Jansen’s work force will be Indigenous when the mine opens.BHP Billiton/Handout

Winning friends in Ottawa and the George Gordon First Nation illustrated what Mr. Henry calls BHP’s “social values” approach – winning positive outcomes for all stakeholders, not just shareholders. The concept is far from novel. Years ago, Larry Fink, CEO of global institutional investor BlackRock Inc., branded it “stakeholder capitalism,” and said it’s the hallmark of great companies.

“I first joined BHP because I saw the company stood for something, that it had a stated set of values,” said Mr. Henry, who BHP recruited as president of its marketing team in 2003 from a similar role at Mitsubishi Corp. He said the company’s values-based culture translates into a competitive advantage, allowing BHP to secure and develop resources, and to operate them more reliably than rivals.

In Saskatchewan, BHP has pledged that 20 per cent of Jansen’s work force will be Indigenous when the mine opens – it will employ 600. The same policy applies to contractors. The big names in Canadian construction are involved – SNC-Lavalin Group Inc. and Aecon Group Inc. – but major projects went to Saskatchewan suppliers with ties to Indigenous business.

With Jansen now under way, and massive mines operating in Chile and Australia, the major challenge facing BHP is finding new deposits. The CEO said the key to future growth lies within BHP.

A decade after being told their company offered no net benefit to Canada, Mr. Henry (middle) stood next to Mr. Champagne (left) as he called BHP the ‘poster child’ for an environmentally-friendly mining industry.Heywood Yu/The Globe and Mail

Five years ago, while running the company’s portfolio of Australian mines, Mr. Henry kicked off project known as the BHP operating system. It captures the principles and practices underlying everything the miner does. The CEO is now poised to use these well-documented processes – the gospel according to Mike – when taking on the increasingly difficult technical challenges that come with getting commodities out of the ground.

In recent years BHP stepped up a program that sees it take minority stakes in junior mining companies scouting for the next big copper, nickel or potash deposit. Its exploration team of about 100 geologists is run from Toronto. In January, for example, BHP made a foray into Tanzania by purchasing a 18-per-cent stake in Kabanga Nickel Ltd. for US$100-millon. The company had exited Africa seven years ago.

If any of the junior miners find significant properties, Mr. Henry said BHP would increase its ownership. “Chances are the next major deposits will be more difficult to access, and demand more technical skills to mine,” Mr. Henry said. “That’s where our operational expertise makes us a natural partner.”

However, Mr. Henry said BHP plans to steer clear of bidding wars for junior companies. In December, it conceded Toronto-based Noront Resources Ltd., which own nickel properties in Ontario’s Ring of Fire region, to Australia’s Wyloo Metals Pty Ltd. after a seven-month battle.

Noront ended up fetching $617-million, almost three times Wyloo’s original offer. Looking back, Mr. Henry said, “We certainly have the resources to pay more, but we are disciplined on where we see value.”

Will BHP use takeovers to bulk up, potentially bidding for another potash producer? Mr. Henry said acquisitions are always part of the company’s growth strategy. When it comes potash, BHP plans to go it alone with the massive Jansen project, but is open to alliances with regional rivals such as Nutrien or Mosaic Co. “There are ways for all of us [in Saskatchewan] to work together and become more efficient, but they don’t involve traditional M&A,” Mr. Henry said.

As BHP contemplates its future on the Prairies – the company has already mapped out three potential expansion stages at the Jansen mine – Mr. Henry got clear signals this week that a once-hostile province is now open to investment.

When BHP’s board arrived in Saskatoon, the company staged a reception at a downtown art gallery. Premier Scott Moe took the stage briefly, using his remarks to remind globetrotting executives what a mine can mean to the province.

“BHP’s presence in Saskatchewan means opportunity,” Mr. Moe said. “For folks who might have gone through some tough times, and are now back on their feet, ready for a fresh start.”

As the Premier spoke, Mr. Henry stood across the room, surrounded by Indigenous leaders from reserves near the Jansen mine, including Mr. Bitternose. They were all nodding in agreement. They were all smiling.

Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.

Source link

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button

Get our latest downloads and information first. Complete the form below to subscribe to our weekly newsletter.