Understanding the Deal Structure
The Australia-US Critical Minerals Compact differs fundamentally from conventional bilateral trade agreements. Rather than focusing on tariff reductions or market access improvements, this framework creates integrated supply chains with explicit US government backing at multiple levels—from Export-Import Bank project financing to Department of Defense offtake commitments to technology sharing arrangements.
The $3 billion immediate investment commitment comprises direct US government funding through various programs, matched investment from the Australian government, and catalyzed private sector capital. The Export-Import Bank has allocated $2.2 billion in financing facilities specifically for critical minerals projects meeting the partnership's criteria, with this government-backed debt unlocking estimated total investment of $5 billion when combined with private sector equity.
This structure creates attractive project economics. Export-Import Bank financing typically carries interest rates 100-200 basis points below commercial alternatives, and explicit US government backing reduces country risk premiums. For large capital-intensive projects like BHP's Resolution Copper requiring $10-15 billion in development capital, accessing $2+ billion in preferential government financing materially improves project returns and reduces equity requirements.
Beyond financing, the partnership includes price support mechanisms representing unprecedented intervention in commodity markets by Western governments. While specific price floor details remain classified, industry sources indicate the framework includes minimum price guarantees for certain strategic materials below which US government agencies commit to purchasing production. This creates effective downside protection for producers.
The Pentagon's commitment to fund a 100 tonnes-per-year gallium refinery in Western Australia exemplifies the strategic rather than purely commercial nature of the partnership. Gallium, essential for semiconductor manufacturing and military electronics, is currently 95%+ supplied by China. The Defense Department funding a refinery in Australia signals recognition that secure supply chains can be achieved through trusted allies rather than pure onshoring.
BHP Group: Resolution Copper Validates Patient Capital
BHP's inclusion as a primary beneficiary centers on the Resolution Copper project in Arizona, a joint venture with Rio Tinto (55% BHP, 45% Rio) that has faced regulatory delays and indigenous land disputes for over two decades. The project sits on Apache Leap, land sacred to the San Carlos Apache tribe, creating environmental and cultural opposition despite the deposit's extraordinary scale—estimated 40 billion pounds of copper.
The October 21 partnership announcement includes language indicating US government commitment to "expediting regulatory processes for critical mineral projects of strategic importance" and "working with indigenous communities to achieve outcomes balancing economic development, environmental protection, and cultural preservation." While specific details remain unclear, explicit White House backing signals determination to advance the project—a material de-risking event after years of regulatory uncertainty.
For BHP shareholders, Resolution Copper represents both massive opportunity and substantial execution risk. Development capital requirements of $10-15 billion would constitute one of the largest copper mine investments globally, and construction timelines extend 7-10 years from final approvals to commercial production.
However, the strategic value extends beyond pure financial returns. The project positions BHP as the primary supplier for US copper demand at a time when electrification, renewable energy, and defense manufacturing create structural demand growth. If US-China strategic competition intensifies, BHP's Resolution Copper production carries optionality value as a geopolitically secure supplier.
The copper market context amplifies Resolution's strategic importance. Global copper supply faces deficits through 2030+ as existing mines deplete and electrification drives demand growth of 5-7% annually. In this environment, large-scale assets located in politically stable jurisdictions command premium valuations—not the 8-10x EBITDA multiples typical of bulk commodity producers but potentially 12-15x multiples reflecting strategic scarcity value.
At current share prices near $42-43, BHP trades at approximately 11-12x forward earnings. This multiple appears reasonable but doesn't yet incorporate the option value of Resolution Copper at scale production or the strategic premium that geopolitically secure supply commands. If Resolution proceeds to development and the market begins valuing BHP's copper business on strategic premium multiples (12-15x vs 8-10x), the company's total valuation could justify 13-15x earnings multiples—translating to $48-52 per share versus current $42-43 levels.
South32: The Hermosa Project's Moment of Validation
South32's 4.5% share price surge on October 21 reflects market recognition that the company's Hermosa project in Arizona directly benefits from the critical minerals partnership. Hermosa, located approximately 80 kilometers from Tucson, represents one of few globally significant deposits containing multiple critical minerals in economically recoverable concentrations. The project comprises three distinct mineral deposits: Taylor zinc-lead-silver deposit, Clark manganese deposit, and Peake rare earths-copper deposit.
The US-Australia partnership explicitly identifies manganese as a critical mineral priority, with the US currently importing 95% of its manganese requirements despite the metal's essential role in steel production and battery manufacturing. Hermosa's Clark deposit contains estimated 38 million tonnes of manganese, making it one of the world's largest manganese resources outside of China, South Africa, and Australia.
Beyond manganese, Hermosa's germanium content—a byproduct metal essential for fiber optics and semiconductor applications—gains strategic significance under the partnership. The US produces no germanium domestically and imports 100% from China. Hermosa's estimated germanium production of 20-30 tonnes annually would represent substantial percentage of total US consumption.
For South32 shareholders, the critical minerals partnership transforms Hermosa from a promising but capital-intensive development project into a strategically validated asset with explicit US government support. The company had previously guided for $1.5-2.0 billion in development capital requirements. With access to Export-Import Bank financing potentially covering $400-600 million at favorable terms, plus possibility of Department of Defense offtake agreements guaranteeing minimum pricing, the project's financial returns improve materially.
South32 trades at approximately $3.70 per share with market capitalization near $12 billion. At this valuation, the market appears to ascribe minimal value to Hermosa despite the project's $1.5-2.0 billion NPV in company feasibility studies. If Hermosa qualifies for $500 million in Export-Import Bank financing and if 30-40% of production secures strategic offtake contracts at prices 10-15% above commercial markets, the project's NPV could increase to $2.5-3.0 billion. This additional $1.0-1.5 billion in value would translate to approximately $0.30-0.45 per South32 share—an 8-12% increase from current levels.
Rio Tinto: Copper Optionality Beyond Iron Ore
Rio Tinto's participation primarily centers on the Resolution Copper joint venture (45% Rio ownership) and the company's broader copper portfolio including Kennecott in Utah. While Rio's core business remains dominated by Pilbara iron ore (65% of EBITDA), the partnership validates the company's strategic evolution toward greater copper exposure.
Resolution's validation carries proportionally less impact for Rio than for BHP given Rio's smaller 45% stake, but the scale means even minority ownership creates material value. If Resolution proceeds to full development and production, Rio's 45% stake could contribute $1.5-2.0 billion annually in EBITDA at $4.00-4.50 per pound copper prices.
At current share prices near $105-108, Rio trades at approximately 9-10x forward earnings—a discount to BHP's 11-12x reflecting Rio's greater concentration in iron ore. If the market begins valuing Rio's copper operations at 12-15x EBITDA (reflecting strategic value) rather than 8-10x, Rio's total valuation could justify 10-12x earnings multiples—translating to $115-125 per share.
Bottom Line for Investors
The US-Australia critical minerals partnership signals supply chain reorientation along geopolitical rather than purely economic lines. Mining companies producing materials essential for defense manufacturing and energy transition in politically aligned nations occupy strategic positions justifying premium valuations versus commodity producers serving purely commercial markets.
For BHP, Rio Tinto, and South32, the October 21 partnership validates years of investment in copper and critical minerals projects. The explicit US government backing de-risks billions in capital expenditure while creating pathway to above-market returns through strategic premium pricing. If the market evolves toward applying 12-15x multiples to critical minerals businesses rather than 8-10x commodity producer multiples, these companies could experience 10-20% revaluations purely from multiple expansion.
3 quality yield income stocks to buy
