ASX BHP: Uncovering the Potential of Uranium

 

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BHP Group Ltd (ASX: BHP) continues to dominate the market, with a significant portion of its earnings coming from the iron ore sector. In FY 2023, the company recorded impressive earnings of $16.7 billion in EBITDA from iron ore. Copper and coal followed as distant runners-up, contributing $6.7 billion and $5.0 billion in EBITDA, respectively. BHP's revenue streams also include nickel, potash, gold, silver, and uranium, with the latter being the focus of our discussion today.

Why Uranium Matters for ASX BHP

Australia is well-positioned to capitalize on the growing global demand for uranium. The country boasts the world's largest Economic Demonstrated Resources (EDR) of uranium, standing at approximately 1.15 million tonnes. Despite this abundant resource, Australia ranks as the world's third-largest uranium producer.

Within Australia, BHP holds a prime position in the uranium sector, thanks to the Olympic Dam site in South Australia. This site is home to "the world's largest" uranium deposit, with an EDR of 876 ktU, according to Geoscience Australia. BHP acquired Olympic Dam in 2005, and it spans a vast area of 700 kilometers of roads and tunnels.

However, despite the massive potential in uranium, most of the revenue from Olympic Dam is derived from copper. In FY 2023, BHP produced 3,406 tonnes of uranium, marking a 43% increase from the previous year. Nevertheless, considering the size of their uranium deposit, BHP has only scratched the surface regarding its future revenue from uranium.

The Role of Uranium in the Energy Transition

BHP's management recognizes the potential of uranium in a world committed to achieving net-zero emissions. They note that uranium is integral to the production of zero-carbon nuclear electricity and plays a significant role in numerous 1.5-degree scenario analyses aimed at addressing climate change.

Uranium's Growing Demand

Global demand for uranium is outpacing supply, leading to a substantial increase in spot uranium prices in 2023, with a 50% rise, and a 125% surge since the end of 2020. Countries like China, India, Japan, Europe, and the United States are extending the lifespan of their existing nuclear plants and actively constructing new ones. The International Energy Agency (IEA) forecasts that global nuclear capacity must double by 2050 to meet ambitious climate goals.

Uranium in Australia

Australia, despite its abundant uranium reserves, does not currently employ nuclear power for domestic energy generation. However, there is a growing movement among some politicians and energy officials to reconsider nuclear power options in Australia. This could potentially expand the revenue generated by BHP shares from uranium exports.

The Australian government aims to generate 82% of its energy from renewables like solar and wind by 2030, but there's a growing realization that nuclear power may need to be part of the energy mix. As small nuclear reactors gain prominence, the landscape is changing, making nuclear energy a more viable option for Australia's future energy needs.

Conclusion

While iron ore and copper will continue to drive earnings for BHP shares in the short to mid-term, uranium's role in BHP's revenue is expected to grow significantly in the years ahead. The world's increasing focus on nuclear power for a sustainable energy future positions BHP as a key player in meeting global uranium demand.