BHP’s BHP June quarter and fiscal 2025 Western Australian Iron Ore sales volumes of 68 million and 255 million metric tons, respectively, are similar to a year ago. Fiscal 2025 copper volumes of 1.46 million metric tons are a record, 11% up on last year due to strong production at Escondida.

Why it matters: Fiscal 2025 iron ore and metallurgical coal volumes (of about 18 million metric tons) are broadly in line with our estimates, but copper volumes are 3% higher. Fiscal 2026 volume guidance is similar to our expectations.

  • However, WAIO average iron ore prices of about USD 88 per metric ton are lower than our USD 92 estimate. BHP guided to fiscal 2025 WAIO unit cash costs now being in the upper half of guidance of between USD 18.00 and USD 19.50 per metric ton. We still expect about USD 19.20.
  • Escondida unit cash costs are now expected at the bottom end of USD 1.30 to USD 1.60 per pound guidance range. We now expect about USD 1.35, down from USD 1.50.

The bottom line: We make no change to our AUD 40 per share fair value estimate for BHP, with the updates to our model not material. Shares trade around fair value.

Coming up: We forecast fiscal 2025 earnings per share of USD 2.22, 17% lower than last year driven by decreased iron ore prices. Our full-year forecast dividend per share is USD 1.17, down compared with fiscal 2024, in line with lower earnings and an approximate 53% payout ratio, modestly higher than its target 50% minimum.

  • We forecast WAIO volumes to modestly increase in fiscal 2026 to about 260 million metric tons (its share). We expect unit cash costs also rise to about USD 20 per metric ton, around 3% higher than our fiscal 2025 estimate. Increased volumes are more than offset by inflation.
  • Lower production at Escondida drives our forecast for copper volumes to fall to about 1.37 million metric tons in fiscal 2026. We expect Escondida unit cash costs of about USD 1.60 per pound, driven by lower volumes.

Iron ore and copper prices remain solid, with BHP shares fairly valued

BHP is the world’s largest miner by market capitalization. Its main operations span iron ore and copper, with smaller contributions from metallurgical coal, thermal coal, and nickel. The company is also developing its Jansen potash project in Canada. BHP merged its oil and gas assets with Woodside Energy in June 2022, vesting the Woodside shares it received to BHP shareholders, and exiting the sector. It purchased copper miner Oz Minerals in fiscal 2023.

Commodity demand is tied to global economic growth, China’s in particular. BHP benefited greatly from the China boom over the past two decades. China is BHP’s largest customer, accounting for roughly 60% of sales in fiscal 2024. With demand for many commodities likely to soften as the China boom ends, particularly iron ore which has disproportionately benefited from the boom in infrastructure and real estate investment, we think the outlook is for earnings to materially decline.

Its generally low-cost, high-quality assets mean BHP is likely to be one of the few miners that remains profitable through the commodity cycle. Much of the company’s operations are located close to key Asian markets, particularly the low-cost iron ore business, providing a modest freight cost advantage relative to some producers such as those in Africa and South America.

BHP correctly values a strong balance sheet to provide some stability through the inevitable cycles and derives some modest benefit from commodity and geographic diversification. Much of its revenue comes from assets in the relative safe haven of Australia. The development of Jansen in Canada is BHP’s major expansion project, with the company also pursuing modest expansion of its Western Australia Iron Ore operations above 290 million metric tons per year.

The good times during the height of the China boom saw significant capital expenditure, notably on iron ore and onshore US shale gas and oil. Overinvestment in the boom diluted returns to the point where we struggle to justify a moat. As a commodity producer, BHP lacks pricing power and is a price taker.

BHP bulls say

  • BHP is a beneficiary of continued global economic growth and demand for the commodities it produces.
  • BHP’s Jansen potash project gives it additional diversification, with potash being less correlated to the other commodities it produces.
  • BHP’s iron ore assets are industry-leading. The company remains well placed to continue low-cost production and increase output with minimal expenditure and an efficiency focus.

BHP bears say

  • BHP has shown improved capital allocation since its missteps during the China boom, but continuing high commodity prices could encourage it to once again aggressively expand output.
  • With its earnings dominated by iron ore and copper, structurally lower demand from China could lead to significantly lower earnings.
  • Resource companies could face growing sovereign risk as governments under fiscal pressure look to plug budgetary holes by taxing the industry.

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Terms used in this article

Star Rating: Our one- to five-star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, and several other factors. A five-star rating means our analysts think the current market price likely represents an excessively pessimistic outlook and that beyond fair risk-adjusted returns are likely over a long timeframe. A one-star rating means our analysts think the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to capital loss.

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Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn about finding different sources of moat, read this article by Mark LaMonica.

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