Episode 140: Mark Frayman, BHP
Today's guest is Mark Frayman, Vice President of Venture Investments at BHP.
BHP is an Anglo-Australian mining company based in Melbourne. One of the biggest mining companies in the world, they extract oil & gas and process minerals, such as coal, copper, and iron. Mark is part of the new Venture Investments Group which is the trading arm of BHP.
A graduate of the University of Melbourne where he studied law, commerce, and finance, Mark went on to serve as an investment banking analyst at UBS on the M&A mining & metals team.
In 2010, he joined BHP Billiton (now BHP) as a manager in acquisitions and divestment. While at BHP Billiton, Mark focused on small and medium-sized transactions on behalf of the company, including development of transaction approach, structure, tactics, valuation, negotiation, and approvals. Mark left BHP to consult on strategy and M&A for a global hedge fund in Buenos Aires and later served as Chief Investment Officer for the Kin Group USA in New York City. After a 5-year hiatus, Mark returned to BHP and assumed his current role as Vice President of Venture Investments.
As the world hurtles towards the Paris Accord goals, mining companies are facing massive challenges. Mark's expertise and experience are fascinating to learn about in relation to sustainability and investments. We have a lively discussion about why and when the ventures group was created, their progress to date, and how they will deploy capital. Mark and I also talk about the sectors and solution areas that are most appealing within the mining industry and what companies can expect if they take funding from BHP. I learned a lot about the role of corporate venture arms.
Enjoy the show!
You can find me on Twitter @jjacobs22 (me), @mcjpod (podcast) or @mcjcollective (company). You can reach us via email at info@mcjcollective.com, where we encourage you to share your feedback on episodes and suggestions for future topics or guests.
Episode recorded December 8th, 2020.
In Today's episode, we cover:
BHP’s mission and what they do
How Mark started working in the mining industry and at BHP
The failures and successes within the mining industry
The future of mining as the world focuses on sustainable solutions
How Mark thinks about the commodities landscape of mining
How the mining industry will decarbonize
Government’s role and incentives within the mining industry
BHP’s zero-emission pledge
What are the initiatives that BHP has taken, and where is the company at on it's path to sustainable mining
Mark's position at BHP Ventures, how and why the group got started, and how it has evolved
BHP scope one and two emissions as they work towards a net-zero commitment
What kind of investments the venture group is looking for, and key benchmarks when measuring success
The venture group's investing process
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Jason Jacobs: Hey, everyone, Jason here. Before we get going, I just wanted to take a moment to give a quick shout out to the new paid membership option that we recently rolled out. This option is meant for people that have been getting value from the podcast and want to enable us to keep producing it in a more sustained way. It's also for people that want extra stuff such as bonus content, a Slack room that's vibrant and filled with people tackling climate change from a wide range of backgrounds and perspectives, as well as a host of programming and events that get organized in the Slack room. We also have a virtual town hall once a month where you can get a preview of what's to come, and provide feedback and input on our direction. We'll be adding more membership benefits over time. If you wanna learn more, just go to the website, myclimatejourney.co. And, if you're already a member, thank you so much for your support. Enjoy the show.
Hello, everyone. This is Jason Jacobs, and welcome to My Climate Journey. This show follows my journey to interview a wide range of guests to better understand and make sense of the formidable problem of climate change, and try to figure out how people like you and I can help. Today's guest is Mark Frayman, VP of Venture Investments at BHP. BHP, formerly known as BHP Billiton, is the trading entity of BHP Group Limited and BHP Group PLC, an Anglo-Australian multinational mining, metals and petroleum dual-listed public company headquartered in Melbourne Victoria, Australia. The company was founded in 1885 in the mining town of Silverton, New South Wales. By 2017, BHP was the world's largest mining company based on market cap, and was Melbourne's third largest company by revenue.
Now the Ventures group is pretty new, so I was excited to have Mark come on the show and walk me through the charter of the Venture group, how it came about, why it came about, when it came about, how far along they are in terms of deploying capital and formalizing their strategy. We also talked about just the role of corporate venture in general and how much it's treated like a fund and how much of it is off balance sheet and how much financial returns matter versus strategic value for the mothership, if you will. But we have a great discussion and it's exciting not only to learn more about what BHP is up to on the venture side, but also the role of corporate venture in general and what founders can expect when they take money from BHP. Mark, welcome to the show.
Mark Frayman: Thank you, Jason. Thanks for having me. Looking forward to it.
Jason Jacobs: Well, thanks for coming. It's so exciting. I think you are definitely the first person that I've talked to from a big mining company so far, and it's fitting because I think you guys also seem to be, well, one of the furthest along as it relates to sustainability.
Mark Frayman: I wouldn't quote on that, but I think we are. You know, I think as a company and then, obviously, within the ventures arm, you know, sustainability is front of mind, it's part of the business. So, you know, I think that's an accurate statement.
Jason Jacobs: Well, maybe let's just take it from the top, so what is BHP? How do you describe it to someone that you haven't spoken with before?
Mark Frayman: First, I normally have to correct people that it's not BP. Uh, it depends on where they are. I mean, it's, if not the largest, then it's one of the largest natural resources companies globally. I think it's often associated as, you know, as a [inaudible 00:03:43] construction and a mining company. We do have a, a material energy business out of Houston. The company is... has evolved over a long, long history. We changed originally as BHP in Australia, now dual-listed, um, out of London, with global operations. Diversified by commodity, we have in excess of 70,000 employees, over 90 locations, $130 billion market cap. It's a prolific company in Australia and part of the footprint of this company, but then, globally, as a mining or extracting materials companies, is one of the largest.
Jason Jacobs: Uh-huh [affirmative]. And, personally, how did you end up finding your way into the mining industry? And it... Actually, it looks like you kind kinda came in and then maybe left and then came back. So, would love to-
Mark Frayman: Yeah. It's [inaudible 00:04:30].
Jason Jacobs: ... [inaudible 00:04:30] that.
Mark Frayman: No. It's my own doing, and now I feel good about it, sorry for me to say. Look, I, I have no knowledge in mining, engineering, geology; I still don't, I've bluffed my way through, but in some conversations I feel like a genius and in others I'm the least intelligent in the room. Um, it's, uh... Look, studied law and, uh, and finance and I went into banking as one does when they don't know what else to do. Realized that's a bad mistake, go in-house to a client which happened to be BHP.
At the time, I thought it'd be for a few weeks and it was all about just, just me checking out investment banking because I was dating someone at the time who said, "It's me or the job." Turned out I loved it; I loved the macroeconomic implications of the industry, I love the culture of the company, the quality of the people could at- attract in Australia and then globally, the opportunities it presented; I ended up staying for four or five years. Finally saying, "I don't wanna be in a company like this. I don't wanna be in a big company, I'm too entrepreneurial."
And, having worked in private equity hedge funds, running money out of the US last three years, came home to a family of my own that was here originally and we tho- I thought about it and just thought, look, you know, the opportunity that presents a company like BHP today in being part of the climate solution is immense. And then I'm quite passionate about it and filled in privileged, the company's fully supportive of the ventures initiative we're running, so I'm finding it really exciting to be back.
Jason Jacobs: So, I am the opposite of an expert on the mining industry, but from what I can gather, from a distance, it is an essential component of not only making our economy run, but also of the clean energy transition. But also, I mean, I hear again and again that, you know, mining is a dirty industry. I guess, how do you think about it as it relates to the things that it does well, and that are important? I'm not talking about BHP, I'm just talking about the mining industry in general, and then maybe the things that either it doesn't do well or that it needs to do differently, looking forwards.
Mark Frayman: Wow. That's a huge question. Where do I begin? Look, I think to start with, as you said, there are perceptions around mining and many of them are incorrect. And, if you look historically, the industry has been responsible for a number of environmental catastrophes globally; that's tragic. And, as you say mining is essential; it's essential to the global economy, as you say, it's also essential to several companies, but it's essential to our day to day lives. Um, you know, you look at this podcast where all the tools and technology we're utilizing to do this require copper, they require lithium; the desk I'm standing behind is made of aluminum, if not steel. It's everywhere, it's essential, and people will always need commodities. Whether that commodity mix is same; no, it won't be. You know, that'll change in time. I mean, will change as the world electrifies and decarbonize; this will change amongst other things too. But people need commodities.
People have a choice, though, about which commodities they use and who to delivers on those commodities, and how are they delivered by those people. And, if you ignore sustainability, in doing so, you'll lose your license to operate. So, as a stickler unfortunately, yeah I mean, often it's been, like all sectors, profit-motivated. But now I think there's an understanding that commodities that are in a portfolio, the way in which they are extracted and then the service license or value in that's sort of conferred in doing so is essential to sustainably operating and, and the world needs that. We can then talk about wind as a solution; you look at what, you know, wind turbines are made of [inaudible 00:08:20]. You look... you know, as I said, the copper wires, it's everywhere. Nickel in car batteries, we could go on and I can talk about the BHP portfolio and how we positioned for that. But [inaudible 00:08:31] that gives you some color into your question.
Jason Jacobs: And how do you think about that commodities landscape? Are there certain commodities that you think need to be dialed down or phased out over time and others that we need to lean into? And how do you think about stack ranking those priorities and determining how to resource looking at kind of where the world needs to go?
Mark Frayman: Fantastic question and there's no right answer; it's different for every company and it's different from a demand based on regions. So, you know, the developing world needs different commodities than the developed world. Where there's mass infrastructure build, your reliance on certain bulk commodities is different than in other parts of the world. But, ultimately, if you look at things like the key parts of the so-called climate problem steel, cement, they're going to be part of our world for the foreseeable future. So it becomes a question about how they are... the technology, but also the way in which, more generally, they're extracted.
But then, from a broader portfolio composition, you know, BHP has a lot of we call... uh, you know, our CEO Mike likes to call future-facing commodities. And in that regard, you know, you look at our big businesses; we have an iron ore business, it's been a part of a multi-billion dollar business. But other commodities [inaudible 00:09:44] copper business is a $10, $11 billion business. We have a large nickel cooperation; nickel and copper are essential in the batching chills chain, they're essential in electrification. We're very bullish on demand for those.
There are a whole bunch of other niche commodities that you see in consumer electronics, they're gonna grow as the world needs. So then, so commodities like isn't renewable energy a commodity? Maybe, maybe not, we can debate that. There's debate about whether... You know, I've seen some of Shell's podcasts around carbon removal and storage; is carbon itself a commodity one day? So I think depending on which demand area you're trying to service, and depending on each company making its own portfolio strategy decisions, there's no right answer, but each company will choose its answer and we have at we call our future-facing commodities.
Jason Jacobs: And when you look at some of the ways that the mining industry has been dirty or detrimental, historically; I mean, you mentioned catastrophes or accidents, for example, is it- is that the primary way, or when you think about something like GHG emissions, for example, is that a big factor in mining? How does that kind of portfolio of detrimental symptoms get allocated?
Mark Frayman: It depends, I think, is the answer to your question, on what you're mining. You know, if you look at our... I- I'll talk for BHP here. If you look at our scope one and two emissions footprint, it's a key consideration for our company and we've made a commitment to get that to net-zero. If you look at where that comes from, yes, there's certain processes at site that are emissions-intensive and energy-intensive, primarily which requires high of large sort of diesel consumption and so. But if you look really where the mining footprint was, or the GHG footprint of operations resides, it's actually outside the operations, it's in our value chain emissions. It's the production of steel with our upstream commodities, with the iron ore a- and metallurgical coal that is a cause of emissions. Do I see that as a sin of the mining industry? Personally, no; I see that as part of current technology required to materials that the world is needing. We see mining as part of the solution to help drive new technologies to produce, by the sum equivalent materials to make needs, doing so in a much lower GHG-footprint manner.
Jason Jacobs: So as you think about the future of mining, what are some things that will be very important for the mining industry to retain? And then, what are the key things that, as an industry, mining needs to change, and how do they need to change those things?
Mark Frayman: Wow! [laughing] Again, a big question. If I break it down, what I say is, if you look at what we need to do, first, in our operations; so let's not question the commodity set that the world's demanding for now, but let's come back to that. But if you take it within the actual sites in the operations, BHP for a long time now, you know, well beyon- you know, ahead of many of the peers out there globally, has been talking about maintaining our social license. I think we recognize that there are stakeholders that permit our operations to thrive as they do, and they're local communities, primarily, our workforce, governments, our customers, and making sure we're good custodians of the land.
And that's not just GHG, that's broader, that's water, it's forestry, it's a whole footprint element as well as looking after the interests of our local communities in our workforce, is gonna be fundamentally continued, it has been for a long time. I think that, now, and w- we've spoken about this publicly, w- we've said, you know, it's no longer about maintaining a social license, it's actually about creating social value, and actually adding value to those communities in which operations are entrenched. So I think there's that element.
I think the next element relating to de-carbonization is, actually, lowering our scale carbon emission footprint in site. I think that's really important and I think it's very feasible, and I think the technology exists already, today, to largely get to a significantly lower GHG footprint in many of our operations, and I think that's also a function of some of BHP's operations, which we can get to later. I think going forward, as you say, the commodity mix will change; our world is forever changing, it has. You know, commodities that were part of BHP's history; lead, zinc, et cetera are far less relevant on a global scale than they are today. Other commodities that have been small sort of pockets of demand are growing rapidly, and as a big mining company, you need to be responsive to that; looking for new ways to access as resources and mine them sustainably, many of which will be in countries and in areas and then deposit types we're uncomfortable with today, so we need to get comfortable with that.
And then, when it comes to extracting those commodities that the world needs, helping and working collaboratively with our value chain; so is shipping, you know, shipping's a source of emissions, we've got to get our stuff to, to processing facilities and then to customers. Working with our customers insofar as the downstream operations are large emitters of GHG, how do we help make our customers sustainable, so there's a big demand for our products? So I think you need to start thinking a lot more outside of just day and day site decisions and ha- and looking at things more holistically.
Jason Jacobs: And can you talk a bit about where BHP is in that trajectory? I mean, you mentioned these different areas of where the industry needs to go, what are the key initiatives that BHP has undertaken, and where are you in that transition to a more sustainable mining future?
Mark Frayman: I don't wanna try to summarize in a sentence what we've spent a lot of time [laughs] on, but I think I would say we've come an incredible way. Even i-... Look, let me talk personally on- to answer the question; from when I left the company three, four years ago to when I've joined, you know, when I left, I thought we were amongst, if not the leader, in most ESG metrics. We're taking a positive, you know, positive action in almost everything relating to communities, workforce, environment, government, stakeholders, customers.
I come back now and it's more than just a part of the corporate affairs office, it's more than a part of divisional teams; ESG is front and center of this company. It's part of the business; it is business. Like, I think we understand that it's more than just getting a license to operate; I think we see the future of the company is premised on how we extract these materials and making sure that we extract things in a way, and we extract the right things and deliver those things that add value to the world in every way.
What have we done? We've made... All of this is very public in our climate change report and our sustainability report. We've made commitments around water consumption, we've made commitments on local community spend, we've made commitments to social spend, we've made commitments to local governments, federal governments. We've made large commitments to net-zero in terms of our Scope 1 and 2 emissions, you know, ahead of many of our peers. We've recently announced value chain partnerships with some of our largest customers. We've set up what I'm doing here in BHP ventures, too, to actually proactively foster technologies to help position the company to lower its footprint an- and actually to create revenue out of the opportunity presented by climate change.
Jason Jacobs: And, of course, I wanna talk to you about your work in BHP Ventures. But before we go down that path, I mean, making the commitment, these bold commitments, about, you know, 2030 or 2050, I mean, obviously that's a starting point. It seems that different companies are in different places, in terms of as they make those commitments, how far along they are and how public they are about the plan and the staging and the metrics and the accountability that actually comes with working towards and delivering against what needs to happen to build the bridge to ultimately get to those big, audacious goals along the way. So, when BHP has made those commitments, what about in terms of the plan? Are you building the plane as you're flying the plane, or where are you in terms of actually knowing how as a company you're gonna get there?
Mark Frayman: Yeah. It's a great question. I mean, I think we invest quite heavily and are ahead the curve in many of our peers and work collaboratively with organizations outside of our sector to help to find standards for reporting and transparency. We actually say, "[inaudible 00:18:13] are nothing unless you actually following the [inaudible 00:18:15] to improve upon them." We are very open in what we report. I mean, I'd encourage rea-, uh, listeners to, to read through our climate change report and sustainability report. I can share the links around that. And, uh, I mean, I'm really ha-
Jason Jacobs: And we can, we can link to it in the show notes for the episode [crosstalk 00:18:30]-
Mark Frayman: Yeah. I'll do that because I think that it's a hard question to answer now. But we spend a considerable amount of time and money in dedicated teams, in being proactive into finding those standards. And, for instance, you know, even an investment in our portfolio is around traceability of GHG missions and other of the elements now in our platform. So I think, you know, wha- what I can say is we've fully recognized that a commitment is just that, it's a commitment; we need to deliver. And we've [laughing] committed to publicly disclosing, annually, our performance and we're very open on it. I'm happy to share with you reports from BHP, but also third-parties around how mining companies track all these elements. And it's GHG, but it's more than that; it's quite granular on GHG but also other metrics, particularly, you know, things around water, around environmental degradation, generally, et cetera.
Jason Jacobs: You mentioned thr- I think there were three buckets you laid out in th- kind of a transition plan, and the second one was around Scope 1 and 2 emissions. And you also mentioned that there were some technological innovations that could help to facilitate that. Where are you in identifying where the gaps are and what areas need innovation? And then, also, where are you in identifying what the solutions might be and who the providers might be to bring those types of innovations to bear?
Mark Frayman: Hmm. We're some way, in that before BHP would do something like commit to net-zero, we've had a workforce of... ah, teams of people across the company, actually, identify how we're gonna get there and create a granular plan and pathway site by site, and then holistically as a company. And I think we've been public and I'd encourage people to go and look to our recent climate change, um, releases. But, you know, I mentioned before that diesel consumption's a key element and looking for diesel displacement at the sites is, is really important. That's in our fleet, and amongst in other areas, more generally electrification at sites is really important.
And, I think, BHP is blessed with considerable renewable endowment and our major operations, say in iron ore in the Pilbara we have solar, we have access to other forms of renewables, we're actively investing in other areas outsides, many of which aren't traditional venture so they're not necessarily say my portfolio, but access to things like solar, wind, other forms of energy to help electrify at site, acts as I said, to, to lower emission vehicles. And, more generally, just lowering the emission intensity of what we do is a big factor. Lowering, you know, things like industry 4.0 technologies that just lower the amount of people you're moving around, lower the mass material movement, lower the energy used in crushing rock; crushing rock takes a hell of a lot of energy. How do you mine differently to crush this rock? What can you do with that? That's a huge factor. How do we move less rock once we've crushed it? So there's the technologies to actually lower the emissions in what we're doing that is actually lowering what we're doing, which is a big factor.
Jason Jacobs: Now, as an organization, given that I imagine from a business unit standpoint, especially a huge company like BHP that's so important and operating at such a big scale and been doing it for such a long time that there's quite a bit of institutional knowledge and muscle memory, which can be a really positive thing in terms of keeping the trains running on time, but can sometimes be a barrier as it relates to thinking about how to do things differently. So, when it comes to identifying where the highest leverage changes can be, is that coming from within the business units, is there a dedicated team looking across the business units that's focused on that? What does that process look like and who owns it?
Mark Frayman: It's a great question. What I would say is that in any large organization, be it a bit corporate, government elsewhere, it maybe anyone it's hard to change ingrained practices and mindsets. I think that what you would find across BHP, and this is right from anyone at site right up to, you know, the C-suite office, you'll find people that are passionate about these causes. So people's mindset is people will get excited by exploring the new opportunities to help improve the company's footprint and standing in sustainability and therefore to grow its future. I think that's something that I just... continues to shock me at BHP, that every single person shares that passion, it's quite an incredible culture.
What I would say is that, still, people are insular, people focus on their day-to-day, and particularly mining where safety is so important, that's appropriate. You lose your focus and people die, so that's really important. I think the part of my job and there's certain teams in the company is to bring the best of external thought into the company. I think people understand the operations quite well; they understand where the emissions tend to least come from. To find solutions, it can be challenging. There are solutions in the sort of day-to-day just someone's idea at site is to how to operate something differently or how to optimize, and they're fantastic. There are then solutions that are large OEMs, you know, you [inaudible 00:23:29] might bring to us as part of their innovation initiatives and will obviously help lower our environmental footprint. There are solutions that our customers might bring to us in terms of our product mix or else, otherwise that we can then help tailor to add onto our, our value chain emissions.
There are the solutions that teams like mine and the innovation team and, and others go and look for proactively, externally, and look for in other sectors, and that's what I've loved about what I'm doing. Like, just being out there, talking to you, talking to environmental investors and other VCs, talking to other corporate VCs from sectors that never traditionally think of mining and realizing, "Hmm. That technology could apply." Could we lower the use of trucks at sites by utilizing drones? Sure. Could some smart sensor on acoustic technology change we how sense what's in materials and, and lower what goes to a processing plant? Sure. And alternative fuels we could recover that we didn't even think of at site? Yeah. There's all sorts of opportunities. Like, do we have massive amounts of underutilized land that could be used for forestry? Yeah. I mean, there's all sorts of things that are coming from the external world that we just hadn't thought of and being a front door for that is super exciting to me.
Jason Jacobs: So, as it relates to things like carbon accounting, for example, where does that live? Is there a dedicated sustainability team? Does that flow through finance and where should it live?
Mark Frayman: I don't know the answer to the last question. My [laughs] my views. We do have a dedicated sustainability team; it's very large and a, and a very important part of the company. There are also sustainability teams ingrained in every asset in every region, so it permeates the whole company. The accounting team... there's a c- central account team similarly instructed like that. I think that, at the moment, in terms of where carbon accounting, and you know this as well as I, still has undefined standards and is difficult to operate, it's still done differently by different people, and there's still a policy advocacy role for BHP in helping to find those standards and then drive them as a leader in the industry across the sector, and across ideas. Lots of that is now central.
I work alongside the central team, work very closely; actually, after this, I'm giving another talk with head of division we call Carbon Management. And, amongst other things, we do look at carbon accounting standards, we look at startups and established companies trying to drive the standards and how can we as BHP help them do so. Ultimately, as it becomes mainstream and the standards have settled, I think you'll integrating into our standard accounting systems and then report it like all other metrics. We do report from site up on it, but, you know, our standard corporate accounting systems are being adjusted real-time as those standards are being adjusted, so it's sort of a work in progress in that regard. But I think in time, I can't see any reason and in fact, I- I see many reasons why it should be reported along side all other financial and other operating metrics.
Jason Jacobs: And in terms of the incentives as they exist today, and this is not really a BHP-specific question, but given where the mining industry is and where it needs to go in terms of a cleaner, more sustainable, more just future, how much of the change that needs to occur can be motivated by good business decisions alone? And how much of it requires intervention in some form, whether it be in the form of carrot or in the form of stick?
Mark Frayman: Can I just play back your question? You asked me how much of the change will come voluntarily from big companies like a BHP versus being mandated by a regulator or m-
Jason Jacobs: No. That's not quite the question. No. No. What I'm asking is if BHP were only optimizing for itself and its financial performance, how much of the right decisions would just naturally happen because it's gonna be better and better business and how much of it needs some external involvement to ensure that it happens and happens expediently? And then a follow-up is how much of that external involvement needs to be stick and how much of it needs to be carrot? Knowing that I'm not asking you about BHP specifically, I'm asking about the mining industry overall.
Mark Frayman: I think it's company-dependent, but I think that you're saying both... I think of a gun very much stick-based. Like I think if you ask that question to most mining executives over two, three decades ago, it would have been stick-based; you've done what you need to do to keep taking stuff out of there. I think it's a very different world now. I think that people understand that there's a cultural and social value for business; it's good business. It motivates our people, it helps get us the best people. It motivates our communities to, to step outside to operate, I think we see that. It helps to have relationships across the value chain, including the regulators. I think doing the right thing is important for business and I think BHP's recognized that for, since the late nineties we voluntarily made civil commitments here to peer, I think our peers recognize that too.
I think now you're seeing a lot, even in the way of the carrot; you're seeing large mining companies make commitments and actually go and build new business platforms in areas around renewables and sustainability, not just anymore to preserve what they're already doing, but actually to, to create new profit centers. I think people are seeing the end markets for their goods change, I think people are starting to see green premier emerge in their commodities. Like, if we can say that our... much like our... There's a fair trade organic stamp on, on food, I see a world whereby, and I think others see this world, whereby the commodities we extract and market is great. Green BHP nickel in your car battery or green X in your iPhone 17. Look, I think we see that world emerging. So I think you're starting to see a shift to carrot and I think that that's really understood amongst mining companies today and people are working extremely hard to try to find ways to capture that opportunity. Does that answer your question?
Jason Jacobs: It does. Yeah. And it's... You know, we are 30 minutes into the discussion before I finally ask you about your group, but, uh-
Mark Frayman: Can I just make one other comment on that? I'm just thinking, one of the things is that many times it's also just a pure operating cost trade-off. Look, I think about our copper operations. You know, we've shifted to... And some of the world's biggest operations in Escondida, um, Chile, we've shifted to talking and we're, and we're talking publicly about this; we have 100% renewable energy by mid-2020s. That's quite incredible. And we're doing that for economic reasons. We're not doing that 'cause... I mean, yes, it's the right thing to do and it's fantastic, but the renewable energy available to us is cheaper than other forms of energy now. It's a good business decision. And, if I... And coming back to you and what you're about to ask on mine group, if I can help drive the technologies to more of those good business decisions available, fantastic.
Jason Jacobs: So now the Ventures group where you live, can you talk a bit about the history of that group? When it got going, why it got going, and what that evolution has looked at and, of course, how that kind of dovetails into where you sit and what the group's charter is today?
Mark Frayman: Yes, sure. In a way, it's an easy answer 'cause it's short, but it's also long. I mean, BHP tried ventures. You know, as a v- you know, to a corporate, venture is not a new thing. It's had its high profile successes and high profile failures for decades. I think we're seeing it starting to be different, I think we're seeing corporate ventures act a bit more like financial ventures and trying to operate in a far more part of the palm but sustainable fashion and a competitive and commercial fashion. BHP tried ventures decades ago, that was quite different. We've looked at technologies in-house and continue to do so amongst our technology team and other teams, but the actual group, BHP Ventures, is something that I came back to the company passionate about for me.
So, you know, we're pretty much a year in maybe to the day, almost, give or take a year since we sort of said, "Well, let's give this a go." This was something that the company is familiar with, but I came back to drive passionate about not just BHP Ventures or venture opportunities being a way to help develop insight on the external world, but actually to help develop technologies that we can apply to drive innovation in our sites today, that includes in terms of environmental footprint, but also I think an appetite to see new business lines. You know, at the start of this year that's now ending, we had a change in CEO. And, I think, with that, the impetus to look at future-facing commodities to drive even further change has been even further magnified and intensified and BHP Ventures is a part of, you know, the corporate toolkit, as they say.
I sit under the chief development officer's function, and I think that's telling, too. You know, we see this as it's not just a climate opportunity, it's not just a technology opportunity, it's a opportunity. For most of the year, the team's just been me, which has been painful, but we've now grown; got team members out in the US, out elsewhere in Australia, we're growing elsewhere globally, and I think that's something else that we bring a- as a venture is that, you know, unique access to Asia and parts of Europe; we're a very global company. So, I want BHP Ventures to reflect that. So yeah, we're sort of at the infancy of our journey and we're only a year in but we are moving quickly and it's quite exciting.
Jason Jacobs: And what is the charter of the group in terms of what kinds of investments are you looking for and what is the job of those investments for BHP?
Mark Frayman: It's a great question. It's been a bit of a learning journey as I've gone through the past year, because to be honest with you and fully transparent, we didn't know when we started. So, [inaudible 00:33:34]. I mean, there's a bit of thought though and debate, but we just said like, like everything, like, you gotta get going. We didn't wanna be too corporate about corporate venture, we wanted to be more venture than corporate and more nimble. And, and, you know, part of this is being sort of beacon on the hill like, "BHP's open for business," and then commercial and we're getting paid to sit there in whiteboards with expensive consultants for months and months trying to plan this out. Let's just get moving and work it out as to how will venture work for BHP. And I think we've landed on that, which is, you know, there are teams at our sites; teams in technology and teams elsewhere that are driving incredible technologies and that's in-house builds, that's relationships with our suppliers and our customers and, you know, and all sorts of programs.
I looked at a lot of those operational enabling technologies for a long time and still will look at them. But, ultimately, that's being done by many others and being done well. Also, for a company of our size and scale, with our low-risk profile and emphasis on safety, you're not gonna see us going with a tiny, emerging startup to risk people's lives and risk billions of dollars of product with something in site, it's just unlikely. So where does early venture belong? Often, it's at the longer, you know, longer data and higher-risk sort of areas. And, for me, it's, it's future growth platforms. There's few others in the company outside of M&A that can occupy what I call that white space at corporate venture, and that's growth. And, and for me, there's three limbs to the strategy; one is growth in, in our so-called future-facing commodities. How do we find more or extract more of the commodities the world needs going forward?
So copper is a very difficult to extract commodity. There aren't many more really like sheen one, high-quality deposits someone is just stumbling over like they might've once upon a time. We know where copper is, it's how do we get it out of the ground? How do we get it out of the ground in an economic way? What are the technologies that help drive that? Nickel, again, how do we help get it out of the ground? How do we... And then how do we also identify some of those deposits in areas that we may not have been able to, to-date with current technology been able to identify? So that could be, you know, an AI machine-learning platform applied to exploration that could help us in, in sort of identifying more resource. From an extraction technology there could be innovative in situ wrenching technologies or other forms of [inaudible 00:35:57] technologies, that dig copper resources that couldn't be extracted before economically, um, or sustainably now can. So, sort of growing our future-facing commodities.
The next limb I would say is sort of horizontal growth. So you look at our commodity base, you know, what else could we do, horizontally and vertically I should say, across into new energies? You know, BHP today is not in certain energy sets, but our capabilities would actually lend us perfectly to be a provider of those and many of those zero or low-carbon energies and have a strong demand; that if you look at what BHP, are we a mining company? Not really. Are we an iron company or a lead company or a z- coal company? We've been all of the above at different times. But going forward, what are we? We're, we're a company that knows how to find, develop, extract, move, and then market resource across complex stakeholder value chains. So how can the Ventures group send technologies to help grow into that?
And then the last limb of the growth channel is just new platforms altogether. I touched upon that earlier; could carbon removal on drawdown be a business line for BHP one day? I think so. Could a circular economy, sort of mining as a service or a cyclability business be a business for BHP one day? Possibly. Is there anyone else in the company that could, you know, see an opportunity to do that? Not really. We could strategize and think about it, but BHP Ventures allowed us to actually learn firsthand, seed and then de-risk possible future entering into those areas.
So, you know, in terms of where I apply that means, it's quite early on. You know, we'll look at any stage, we have the flexibility as a corporate venture to be sort of stage-agnostic, check-size agnostic, et cetera. But where I find myself focusing is sort of seed to series B sweet spot, series A. We like to invest alongside sophisticated investors, we like to invest where we can bring more than capital; there's a lot of capital in the world. We can write much bigger checks than your average seed or series A or B around; we don't like to just be money, we like to go and open up our business, our know-how, our capabilities to move [inaudible 00:38:03] value with our companies. So hopefully that gives you some color.
Jason Jacobs: Are you set up like a fund or are you doing investments off balance sheet?
Mark Frayman: We look, feel, and smell like a fund, but the investments from a structural perspective off balance sheet.
Jason Jacobs: And then do you measure yourselves against the things that funds typically measure themselves against? For return and, you know, cash-on-cash and IRR and all the other lingo I'm still learning as a new professional investor?
Mark Frayman: Yeah. I mean, this is a discipline and I have, um, most of a social and environmental crusader and passionate about the, uh, the causes in which I invest and passionate about the company with whom I'm investing. I'm also at heart a believer in markets and I think that good companies that do good for BHP, that do good for society will always do well financially. Without a sustainable end market, I don't believe the company will work, so I am financially-minded. I mean, ultimately, this is going to be, and this i- like, I am measured by the company on how we perform strategically, primarily. Because, ultimately, the value that we bring to the company through one investment at one side toward one area which has dwarfed the amount of money we're getting place.
Like, if you're talking multi-billion dollar businesses and you get a small incremental improvement in one, it's gonna, you know, absolutely dwarf the, even the most incredible top decile funds returns in terms of value creation. So adding value to the company either in the sites that I am and also in terms of future optionality is where primarily I'm sort of motivated to focus, but I have financial metrics that I need to meet. I will run the team using the standard venture operational metrics and financial performance metrics in time, 'cause I think it's a good discipline. I think it's crucial to attract the best co-investors, the best companies, and the best people into the operation here, because I think all of those partners want to partner with people that, in addition to doing good, in addition to growing BHP, they wanna make money. A- and I want BHP Ventures to be able to partner with those people and create value with them.
Jason Jacobs: And I guess this is maybe in the weeds a little bit, but just given that I might... that I know founders will, will wanna know these kinds of things if they go to raise money from BHP, do you take board seats, do you have information rights? Is that a- are those mandatory?
Mark Frayman: Look, again, we're trying to be commercial. We wanna be seen as a commercial lessors, so information rights and things like that are important to us. We're not gonna demand something that's completely non-market or disproportionate in size stake, or the value that we're bringing. And we look at those things together. Most investments we look at, yeah, we look to agree and decide that with the company. That site letter will, it'll depend on the company. I mean, often it's two ways; it adds value to the company and might provide them access to our sites, to our people, it might provide access to our value chain, et cetera.
Information rights are important, board seats, board observer seats, all the usual things are important. We only demand exclusivity? No. 'Cause it kills the company. But are there areas where a confined exclusive relationship makes sense and adds two-way value? Yeah. So we're gonna be nimble and responsive to what makes sense. Could we look at co-developing certain applications be it in certain commodities or certain geographies or certain technology areas? Yeah. And, and I like to think we can be quite creative in deal structure. But the commercial, we're not gonna demand something that's high on commercial.
Jason Jacobs: And in terms of that strategic alignment, do you find, and maybe it's just too early to know, I don't know how many investments you've made to date, which I, I should probably ask you at some point but-
Mark Frayman: I won't answer [laughs].
Jason Jacobs: ... [laughs] but is the, does the commercial partnership, is that typically where the relationship starts and then the investment comes later? Is it the other way around? Is it... Are they mutually dependent?
Mark Frayman: It's a bit of all of the above. I mean, some of the best deal flows through people down on sites. People say, "Hey. This company came to me. Don't know. We love them. What they're doing's fantastic." I look at them and say, "Wow. This company's actually got a really big potential market, and it hasn't even captured it and we could help them." That's really interesting. It's... you know, being plugged into those people at sites, incredible as it flows the deal through. Some of them come from peers in other sectors; we had a lot of deal flow from some very friendly, oil and gas major CVC funds we like to work with because it's just a natural fit.
Some of them come from their suppliers and their CVC funds, more than just themselves. Some of them come from, you know, many other Silicon Valley climate tech investors who say, "Hey. This could be an application." Some of them come from prior guests on your show; or some of them come from me listening to your show and cold emailing or calling people and some come from academia. So it's all sorts and, often, it depends on the company. Like if I find a company to my network externally, it can be challenging to try to plug it in internally, but sometimes that's when we deliver the greatest value.
Jason Jacobs: And given that some of these investments take years to know how successful they're going to be, and you are doing off balance sheet investing, I'm, I'm imagining that each year there's some sort of budgeting process. What are the key things that you think your upper management wants to see, say, on an annual basis to look at, to know how you're doing and how they should think about budgeting for the following year?
Mark Frayman: It's a really hard question and as I said we're still in the early stages of our journeys, so we're learning. I do think that there's a commitment from top management, that this is a long-term endeavor. I think we understand fully that one of the failures of corporate venture the, it's seen as tourist capital; it comes and goes. And then it's, it's pulled back as the next CEO comes in. I think BHP accepts that we need to be here and be good partners for a long-term and this is about the long-term. To answer your question on annual KPIs and then what that means for next year's budget, I mean, we do seek in our budgeting process and our capital allocation framework... mining as a sector is a very long-term sort of oriented... We're very used to making decisions for decades if not centuries, that's some of our project-level decisions. So I think we do ahead a number of years and we do budget for a number of years. So I think there is capital there for follow-on rounds, and I do, where appropriate, seek pre-approval for follow-on commitments to make sure that they're always good, good investors going forward.
As to annual measures in success, it is early. We do recognize it's obviously financial measures, but like any funds, you're not gonna see markups of that f- you know, in your early years, it just doesn't happen. There's forms of strategic value in terms of implementations at site that we might comp and measure, but many of things that we're investing in are outside of the business, as I said they're sort of new commodities, new verticals. So some of that value's conferred through insights. So we'll, you know, look to engage with the different stakeholders in the company and maybe beneficiary or interested readers of those insights and how do they value them. And then many of them are just gonna be traditional venture metrics on a company itself like, is this company meeting operational plans, meeting it's financial plans, is it progressing as expected? Even if there hasn't been a financial valuation markup. So I think in the early stages, particularly investing outside of things that are applicable at site, we're gonna measure things like a normal venture fund who's doing the same.
Jason Jacobs: And then for anyone that's listening that is working on stuff that might be relevant for you, who do you wanna hear from? And how should they get in touch?
Mark Frayman: I wanna from a bit of everyone and everyone, Jason. I say that tonight and already regret because we're swamped with deal flow. We're lucky, actually, maybe lucky, maybe smart, maybe stupid, I'm not sure, to be amongst the first of traditional mining company as a, or that has a corporate venture arm. And the amount of people saying, "Wow. This could actually be really interesting," in our businesses is, uh, is incredible. So who do we wanna hear from? We wanna hear from founders, we love hearing directly from founders. We even found some investible businesses in areas, you know, that along the strategy that we discussed, but we wanna hear from other investors. We're always looking for great partners; we're privileged to have some already, but are always interested in more. Other corporates that wanna share ideas.
How to get in touch? I mean, at the moment you email me [laughs]. That's pretty nimble. We're ge- we are in the process of setting up various avenues of social media, et cetera. But, um, one of the things I'll be careful of is we don't want to be like many others out there singing from the rooftops, "Hey. Look at us. We're doing all this," this is not a publicity game. This is a, a real business investment game and we're building this properly before we go out and market it. And we've got a portfolio and I wanna keep growing that portfolio before we get too public about it. But, you know, through the show notes, I'll provide you a few ways that, that people can get in touch.
Jason Jacobs: Sounds great. And anything I didn't ask you that I should have, or any parting words for listeners?
Mark Frayman: No. I mean, I guess I just wanna reiterate that I now live and breathe this daily, maybe less so that I'm not walking through the corridors because of, uh, you know, [laughing] no one's in the office at the moment these days. But mining companies, externally, and particularly probably amongst many listeners, are seen as dirty and they have been. There's this image of this dirty-faced coal miner and burning chimneys. Like, I really encourage people to look at some of BHP's operations, read our reports, do the same with our peers and understand that it's part of the solution and the technologies that you might think are disrupting mining are actually perfectly built within and in partnership with companies like ours, and we're not doing this just to greenwash, we're doing this because it's the future of the business.
I think people will see that and people are excited by that. And there's massive amounts of inbuilt knowledge, capital, employees that can be applied to helping founders grow their businesses and doing so in geographies that people haven't thought of. So I just encourage people to think creatively 'cause I'm trying to do the same and challenge myself. That's really it. And hopefully, you know, we like to think of ourselves that we are a global company, but down here in Australia, we like to have fun. You know, let's, let's build these things together and have fun. So, I guess that's it.
Jason Jacobs: Sounds great. Well, I can almost guarantee that you are going to get flooded with inbound from this episode, whether you like it or not. Definitely-
Mark Frayman: Can you filter for me?
Jason Jacobs: [laughs] We can do our best. Or we, we kind of might just throw you to the wolfs and see what comes of it. But this was great, Mark. It's really fascinating for me to learn more about the mining industry, especially from such a leader like BHP. And I think it's fascinating to think about the transitions that the industry is going through and BHP in many ways seems to be pioneering that effort. And it's also really interesting to think about how the venture arm fits in and what means kind of working backwards into like the innovation happening from zero and how that might ultimately tie in and integrate and, and help facilitate this tr- this transition. So-
Mark Frayman: Thank you.
Jason Jacobs: ... great episode. And can't wait to see how this plays out. And, uh, I'll be watching closely to see when some of the announcements happen with your investments as well.
Mark Frayman: Thanks, Jason. Thanks for your time. And thanks for listening to me 'cause it's... we're on a learning journey. No doubt if we talk again in a month, a year, two years, it's gonna be very different. So, thank you for having me. And I found it enjoyable. Thank you.
Jason Jacobs: Hey, everyone. Jason here. Thanks again for joining me on My Climate Journey. If you'd like to learn more about the journey, you can visit us at myclimatejourney.co. Note; that is .co not .com. Someday we'll get the .com, but right now .co. You can also find me on Twitter @JJacobs22, where I would encourage you to share your feedback on the episode or suggestions for future guests you'd like to hear. And, before I let you go, if you enjoyed the show, please share an episode with a friend or consider leaving a review on iTunes. The lawyers made me say that. Thank you.
