BHP (ASX.BHP) sold 350,000 metric tons of copper in the fourth quarter, down 8% on a year ago, with fiscal 2026 volumes falling 7% to 1.38 million. While Western Australian Iron Ore, or WAIO, sales volumes were also lower, by 2% to 66 million metric tons, they were flat for the fiscal year, at 254 million.

Why it matters: Iron ore volumes were in line with our estimate while copper volumes were modestly below, though copper unit costs are likely to be better than we expected. Its average realized copper price was moderately above what we assumed but broadly offset by the opposite with iron ore.

  • Copper production guidance is disappointing, mainly due to lower volumes in South Australia due to a mechanical failure. We lower our fiscal 2027 estimate by 6% to 1.29 million metric tons.
  • Other volume guidance is broadly as expected, with changes to our estimates being minor. BHP will provide fiscal 2027 cost guidance at its upcoming fiscal 2026 results.

The bottom line: We maintain no-moat BHP’s fair value at $44.

  • Shares trade at a 34% premium, likely driven by the copper price trading above USD 6 per pound, near historical highs. This is materially above our assumed midcycle price of USD 3.80 from 2030 based on our estimated marginal cost of production.

Bulls say: The premium is justified as the copper price will remain elevated. Rising data center and energy transition demand adds to traditional sources of demand for use in electrical applications, construction, consumer products, transportation, and machinery.

  • Supply struggles to keep up with demand due to falling grades, longer development timelines, increasing regulatory burdens, and the rising cost to develop new mines or expand existing ones.

Between the lines: We disagree. China comprises half of copper demand given its dominance of fixed-asset investment in housing and infrastructure. This is likely a headwind as China transitions to a more consumption-focused, less commodity-intensive economy.

Optimism Over Copper Demand and Prices Sees BHP Shares Overvalued

BHP is the world’s largest miner by market capitalization. Its main operations span iron ore and copper, with smaller contributions from metallurgical coal and thermal coal. It placed its nickel operations on care and maintenance due to low prices in 2024. BHP is also developing its Jansen potash project in Canada. It 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, and half of the Vicuna copper joint venture in fiscal 2025.

Commodity demand is tied to global economic growth, particularly China’s. 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 2025. But we think demand for many commodities is likely to soften as the China boom ends, particularly iron ore, which has disproportionately benefited from the boom in infrastructure and real estate investment.

Its generally low-cost, high-quality assets mean BHP is likely to be one of the few miners that remain profitable through the commodity cycle. Much of its operations are 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 relatively safe haven of Australia. The development of Jansen in Canada is BHP’s major expansion project, while it is also looking to expand copper production. It is also pursuing modest expansion of its Western Australia Iron Ore operations above 290 million metric tons (100% basis) 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, it lacks pricing power and is a price taker.

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.

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 copper and iron ore, 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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