This BHP old boy thinks copper and rare earths prices will spike
Brad Thompson
May 5, 2024
Former BHP copper boss Darryl Cuzzubbo says the mining giant is thinking in decades when it makes big moves, such as its $60 billion takeover tilt at Anglo American.
Mr Cuzzubbo, who ran the Olympic Dam copper, gold and uranium mine for part of a 24-year career with BHP, is now chief executive of Arafura Rare Earths, and sees parallels between copper and rare earths.
“There are similarities … in the sense that the energy transition can not occur without a lot more copper,” he said.
Mr Cuzzubbo is banking on a big increase in demand for rare earths as Arafura pushes ahead with the $1.62 billion Nolans project in the Northern Territory after receiving an $809 million package of loans from the federal government.
The mining veteran – who spent a tumultuous year running BHP-backed SolGold and its big Ecuadorian copper project before joining Arafura – sees the logic in going after Anglo American’s copper prize.
Former BHP copper boss Darryl Cuzzubbo says the mining giant is thinking in decades when it makes big moves, such as its $60 billion takeover tilt at Anglo American.
Mr Cuzzubbo, who ran the Olympic Dam copper, gold and uranium mine for part of a 24-year career with BHP, is now chief executive of Arafura Rare Earths, and sees parallels between copper and rare earths.
Arafura Rare Earths boss Darryl Cuzzubbo on the balcony of his Perth office last week. Trevor Collens
“There are similarities … in the sense that the energy transition can not occur without a lot more copper,” he said.
Mr Cuzzubbo is banking on a big increase in demand for rare earths as Arafura pushes ahead with the $1.62 billion Nolans project in the Northern Territory after receiving an $809 million package of loans from the federal government.
The mining veteran – who spent a tumultuous year running BHP-backed SolGold and its big Ecuadorian copper project before joining Arafura – sees the logic in going after Anglo American’s copper prize.
“When BHP move, they think in decades. That’s why, over the long term, they always come out on top,” he says.
“The problem in copper is two-fold. Mines are getting deeper and lower-grade, so it’s more costly to extract copper. And if you look at the development pipeline for large tier 1 copper projects, it’s pretty bare.
“So, you’ve got to be bullish on the copper price. It has already been firming despite the global economic outlook still having a fair bit of uncertainty, which normally weighs on the copper price.”
In rare earths, Arafura predicts a supply shortfall, with global production sitting about 65,000 tonnes a year and demand on track to hit 126,000 tonnes a year by 2032 based on forecast use in electric vehicles, wind turbines, defence applications and electronics.
That is, despite a slump that has hit the world’s biggest non-China producers – Lynas Rare Earths and MP Materials – hard.
Lynas boss Amanda Lacaze said Lynas and China’s Northern Rare Earths were the only producers in the world making money with neodymium and praseodymium (NdPr) prices at $US47 per kilogram.
Mr Cuzzubbo said in the event of a supply shortfall, electric vehicle makers would be willing to pay much more for NdPr.
“If you’re a car manufacturer, would you pay $US200 a kilogram instead of $US50 for the NdPr needed to get another car out?” he says.
“It’s like the semiconductor crisis coming out of COVID. The car makers who had to pull back production at their heavily capitalised plants would have paid just about anything for a few extra chips.”
Arafura has avoided links to China, signing binding offtake deals with South Korea’s Hyundai and Kia, and with renewable energy company Siemens Gamesa. It is in talks about supplying GE as part of a strategy to have 80 -85 per cent of annual production spoken for under offtake deals.
The strategy has put Arafura in line for fiscal packages from Canada, Germany, and South Korea, on top of the Albanese government’s backing.
“The opportunity for Arafura is to be the next Lynas, whether that’s to the Koreans, to the Europeans, whatever, but completely separate from the Chinese supply chain,” Mr Cuzzubbo said
“There’s two issues with the China supply chain. One is the security of supply. They will inevitably look after their own EV industry before they look after other countries.
“The second is that most people buy EVs because they want to be a responsible part of the energy transition. I think that as EV owners start to understand where China’s rare earths is coming from and the environmental and human rights implications, car makers will need to distinguish between Chinese supply and more responsibly sourced supply.”
Australia’s $809 million in backing for Arafura to mine and produce rare earths oxides, as well as battery-grade phosphoric acid at Nolans, raised eyebrows in March, and not just because billionaire Gina Rinehart is Arafura’s biggest shareholder with a 10 per cent stake (Mrs Rinehart is also a Lynas and MP Materials shareholder).
Taxpayers have already backed Iluka Resources to the tune of $1.25 billion to build a rare earths refinery at Eneabba in WA. Lynas says it now has excess downstream processing capacity after building a cracking and leaching plant at Kalgoorlie.
Mr Cuzzubbo rejects suggestions that the government is at risk of fuelling over-investment in downstream infrastructure.
“If you look at the demand, there is space for all of us to be successful,” he said.
Part of the government’s rationale in backing Nolans is the economic and social benefits attached for Alice Springs.
The next big step for Arafura is to nail down its $US775 million senior debt package and complete a significant equity raising. Mr Cuzzubbo said the government’s backing reduced the risk for other lenders and gave comfort to investors on the equity side.
IXR Price at posting:
1.3¢ Sentiment: Buy Disclosure: Held
(20min delay)