BHP’s fiscal 2025 underlying NPAT of USD 10.2 billion or USD 2 per share is down 26% on a year ago due to lower iron ore prices more than offsetting improved copper volumes. The USD 0.60 fully franked final dividend and USD 1.10 for the fiscal year are also down in line with lower earnings.

Why it matters: The result is softer than we expected but shares are modestly higher, likely due to lower medium-term capital expenditure guidance. Unit cash cost guidance for Escondida and, to a lesser extent, iron ore is lower than we estimated but broadly offset by a higher effective tax rate.

The bottom line: Our AUD 40 fair value estimate for no-moat BHP stands. Shares screen about 5% overvalued, likely due to recent increases in the iron ore price as China curbs overcapacity across its economy, including in steelmaking, resulting in higher steel prices and margins.

  • While improved sentiment is bullish for near-term iron ore prices, lower China steel production recently suggests it has peaked. Reduced China iron ore demand, representing around 70% of the seaborne trade, is bearish for longer-term prices.
  • As it moves to a less commodity-intensive consumption-based economy, along with increased scrap use and rising iron ore supply led by Simandou and Vale, we assume iron ore falls to about USD 72 per metric ton midcycle from 2029, from around USD 100 currently.

Long view: A more consumption-focused economy also underlies our assumption that copper will fall to about USD 3.75 per pound midcycle from 2029, from USD 4.50 now. Lower prices drive a forecast annual average 3% decline in earnings to fiscal 2030.

Key stats: Lower iron ore and copper prices are partially offset by forecast modest increases in Western Australian Iron Ore volumes to about 275 million metric tons (its share) in fiscal 2030, from 255 million in fiscal 2025, in line with medium-term guidance.

  • Given that we assume lower iron ore prices, modest rather than large increases in volumes are sensible.

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 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.

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 2025. 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 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 (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, BHP lacks pricing power and is a price taker.

Terms used in our analyst reports

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.

Fair Value: Morningstar’s Fair Value estimate results from a detailed projection of a company’s future cash flows, resulting from our analysts’ independent primary research. Price To Fair Value measures the current market price against estimated Fair Value. If a company’s stock trades at $100 and our analysts believe it is worth $200, the price to fair value ratio would be 0.5. A Price to Fair Value over 1 suggests the share is overvalued.

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.

Uncertainty Rating: Morningstar’s Uncertainty Rating is designed to capture the range of potential outcomes for a company. An investor can think of this as the underlying risk of the business. For higher risk businesses with wider ranges of potential outcomes an investor should consider a larger margin of safety or difference between the estimate of what a share is worth and how much an investor pays. This rating is used to assign the margin of safety required before investing, which in turn explicitly drives our stock star rating system. The Uncertainty Rating is aimed at identifying the confidence we should have in assigning a fair value estimate for a stock. Read more about business risk and margin of safety here.