The CEO of the world’s largest miner gave us his outlook on every major commodity. Here’s where he says the biggest investing opportunities are hidden.

When Andrew Mackenzie became the CEO of BHP in 2013, his priority was focusing the company’s spending on the most profitable, long-term commodities.

This approach compelled the world’s largest miner to make big investments in less mainstream materials like potash, a component of fertilizers that Mackenzie foresees as a 100-year profit generator.

But make no mistake: BHP remains a juggernaut in mining traditional commodities. It earns about 40% of its profits from iron ore, and 20% each from oil, coal, and copper. Those proceeds are then measured against a set of capital-spending rules that determine how much should be returned to shareholders, and how much should be allocated to finding new opportunities.

During a recent, exclusive interview with Business Insider, Mackenzie detailed his outlooks for all the major commodities, the scope of investing opportunities that lie ahead, and where he sees prices headed.

His views are quoted below, and some have been lightly edited for clarity.

Crude oil

“I’m more interested in catching what I think could be some quite high oil prices in the 2020s.

“I think shale has been a great success. And I think it’ll remain that way for gas. But a lot of the shale oil developments we were a part of until we sold came as a result of people being a bit depressed by the low gas prices, because there was so much gas. I think this might be a relatively temporary phenomenon. And when that’s apparent, and there’s a shortage of new oil production coming on, I think you might see a bit of spiking [in prices].

“Will oil disappear as an energy source quicker than coal? If you really see penetration of electric vehicles, it’ll never go completely, obviously, but you could hit peak oil before you would hit peak coal even in a relatively green scenario.

“We’re in a place where there is a risk to our business for peak coal — and not metallurgical coal — but peak energy coal and peak oil. And we need to think about how we diversify. But that isn’t going to happen until the 2030s. And if you handle it well, you could manage the transition.”

Read more: The CEO of the world’s largest miner details where he’s investing as the world shifts away from fossil fuels — and he says it could lock in 100 years of profits

Coal

“We’re not likely to invest big time in growing our energy coal business.

“Coal will last forever, but as a growing business, it’s a finite opportunity. And it’s likely to shrink over time.

“My message to Trump was, this is a great opportunity for technology leadership. Think about the most efficient ways of burning coals and ways of actually capturing and storing some of that carbon. You can think about way in which you could make a contribution to the Paris Agreement, and still be thoughtful about some of the people who voted for you. In the long run, you’d have to say that, probably, the most likely outcome is that the use of coal will decline.”

Copper

C opper is a little on the cheap side.

“We do think supply additions are hard in copper. And copper is like oil: there’s a natural decline, because of grade, which there isn’t in the other commodities we’re into.

“Our signposts on the demand side are really just the uptake, and penetration, of electric vehicles. Right now, it’s looking more positive and greener than we would have said two or three years back. But that may change. And that, of course, then triggers the interest in things like nickel and copper, and the concerns we might have for the future of oil.”

Read more: Paul Krugman, Rick Rieder, and 47 more of the brightest minds on Wall Street reveal the world’s most important charts

Nickel

“We have the possibility of [investing in] nickel, which could be a market as big as copper in the future if it’s the main component of batteries or more local storage units.

“When you look at some of the growing demand, particularly for some of the new energy technologies that are coming through, and you look at the comparable stocks and the investment in new supply, we would be reasonably optimistic that some of those prices like copper, and nickel, and uranium will recover from current levels.”

Iron ore

“Realistically, we wouldn’t invest a lot more now in iron ore and metallurgical coal. We think the next investments would not return a decent return. So, our alternative is to pay more cash back to the shareholder.”

Bonus: Potash

“At the moment, about 40% of our profits come from iron ore and 20% each from metallurgical coal, copper, and petroleum. We could replace one of those areas with potash over a few decades.”

Read More



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