Our opinion on the current state of BHP(BHG)BHP is a global commodities company based in Melbourne, Australia, with a workforce of 62,000 employees predominantly in the Americas and Australia. It is engaged in the extraction and processing of minerals, oil, and gas. BHP's extensive operations include ownership stakes in some of the world's leading mineral resources.
BHP owns a significant 57.5% of the Escondida mine in Chile, one of the largest copper producers globally, which also yields gold and silver. It has a 33.75% stake in Antamina in Peru, known for its copper and zinc production. It fully owns Pampa Norte, which produces copper cathode in Chile's Atacama Desert. In Brazil, BHP holds a 50% share in Samarco, an iron ore producer, and a one-third interest in the Cerrejon coal mine in Colombia.
In Canada, BHP holds mineral rights in Saskatchewan, home to one of the largest unexploited potash deposits globally. In Australia, it owns the Olympic Dam, one of the largest bodies of copper, uranium, and gold ore in the world, and Western Australia Iron Ore, a system of five mines connected by over 1000km of railway lines. Additionally, BHP owns Queensland Coal, which includes the Mitsubishi Alliance and Mitsui Coal, and the Mt. Arthur coal mine in New South Wales. Its Nickel West operation in Australia includes a nickel mine with smelters, concentrators, and a refinery. In the petroleum sector, BHP possesses high-quality resources in the Gulf of Mexico, Australia, Trinidad, and Tobago.
For the six months ending on 31st December 2023, BHP reported a revenue increase of 6% but saw a significant drop in headline earnings per share (HEPS) by 48%. The company's tangible net asset value (NAV) decreased slightly from $8.91 to $8.68 per share. BHP highlighted strong performances at its iron ore operations in Western Australia and record copper production in South Australia and Chile. The company is also expanding its potash production capacity in Canada, illustrating its strategic growth initiatives.
Despite global commodity price volatility and varied demand across different markets, BHP noted healthy demand from China and a strong market in India. As of the nine-month report to 31st March 2024, BHP remains on track to meet its annual production targets for copper, iron ore, and energy coal, with copper volumes increasing by 10%.
The share price trajectory of BHP has been influenced by broader economic factors, including the commodity cycle. Since a sharp decline at the onset of the coronavirus pandemic, the share price had been on an upward trend until early 2024 when it faced challenges from falling commodity prices.
On 25th April 2024, BHP announced a significant move in making a share offer for the entire issued share capital of Anglo American, contingent on the unbundling of Amplats and Kumba. This strategic attempt could potentially initiate a bidding war with major industry players such as Rio Tinto and Glencore, highlighting BHP’s active role in industry consolidation.
BHP's portfolio, marked by its diversity and scale, positions it uniquely in the mining sector, though it remains susceptible to the inherent volatilities of the commodity markets. This backdrop frames BHP as a potentially lucrative yet fluctuating investment option, reflective of the dynamic nature of the global commodities industry.
