Macro Intelligence: BHP's future focused on potash and copper amidst global energy transition

Article written by Nadine Blayney (ausbiz)

Future focused

BHP Group Ltd is one of the oldest miners in Australia, tracing its roots back to 1851, but its portfolio is becoming increasingly future-focused.

Expanding into potash and copper

With demands from the energy transition and population growth in mind, BHP (ASX: BHP) is growing its exposure to commodities such as potash and copper. Still, commodities of “today” such as iron ore and coal remain key features of the ‘Big Australian’s’ portfolio, though it no longer has exposure to oil and gas.

Growing its copper operations is a key focus for BHP because of the metal’s use in construction, renewable energy infrastructure, transportation, and the electrification of the economy. BHP owns and operates several copper mines in Chile and one in South Australia.

Despite hailing nickel as a future-focused commodity, in part because of its use in lithium-ion batteries which power electric vehicles, BHP has temporarily suspended operations at its Western Australia nickel project, due to high global supply and weak prices. BHP is expecting an underlying EBITDA loss of US$300 million at Western Australia Nickel for FY24.

BHP's key performance metrics

Iron ore and nickel operations

BHP iron ore operations in Western Australia are going strong, with production hitting a record in the June quarter. While highly polluting, iron ore is integral to making steel, which is then used in construction, transport, energy, and household appliances. It remains Australia's leading export. In addition to its Western Australian operations, BHP also holds a 50% interest in the Samarco project in Brazil.

While potash production is still firmly in the future, BHP expects demand for the critical mineral to grow as populations grow and diets improve. The company has begun construction on the second stage of the $14 billion Jansen project in Canada, with the first stage now around 50% complete. Jansen will be one of the world’s largest potash mines, with first production planned for late 2026.

Strategic divestments and future plans

On coal, BHP divested its Blackwater and Daunia metallurgical coal operations this year, but plans to increase production at its 50%-owned Queensland BMA site over the next five years. BHP also plans to end mining at its NSW coking coal mine in FY30, as part of its plan to exit the ‘dirty’ coal business.

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Proof in production

BHP achieved several production records in the June quarter, with record production at Western Australian iron ore and at two Australian copper mines. Total copper production increased 9% on the year, with a 4% increase forecast for FY25.

Average realised prices for copper and iron ore were higher in FY24, with metallurgical coal prices stable, and nickel and coking coal prices coming under pressure.

On costs, BHP said in its operational report it is on target to achieve guidance across its commodities.

“BHP had a better set of production numbers than Rio Tinto (ASX: RIO),” James Gerrish from Market Matters recently told ausbiz.

“What BHP has shown is they’re pushing towards more copper and future-facing industries, I think that will bear fruit over the coming years.”

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Is BHP a buy?

BHP was recently toppled from the pinnacle of the S&P/ASX 200 in market cap by the Commonwealth Bank of Australia (ASX: CBA). The change in guard came after a 17.75% fall in its share price in the year to date, with BHP’s stock down 6.25% over the past year.

That’s compared to a 14.54% and 6.31% fall in the S&P/ASX 200 Materials index over the same time period.

BHP daily chart

Copper production and price volatility

Commodity price concerns and market reactions

The sharp share price falls have been driven by negative commodity price action as investors fret about global growth and particularly growth in China. Even China’s first cut to major short- and long-term interest rates in 11 months failed to revive iron ore prices.

“There’s a lot of negativity around (BHP) at the moment,” says Gerrish. “I like focusing on areas where negativity is high.”

Jefferies’ positive outlook on BHP

Jefferies says the risk and reward argument on trading BHP's shares is positive based on its commodity mix, balance sheet, capital return potential, and valuation. Analysts there say they are more positive than consensus on the outlook for iron ore prices and have reiterated a ‘buy’ call on BHP, though they warn of near-term volatility in the shares.

Long-term commodity price index: 1989-2024

Analyst ratings and future projections

RBC Capital Markets retains its ‘sector perform’ rating on BHP and $44.00 price target. Analysts say BHP’s pre-released info for the results appears generally positive, calling the quarter a strong end to FY24.

Goldman Sachs said BHP’s quarterly production report showed strong operational performance across all divisions, with FY25 guidance in line with its expectations. Analysts call its valuation ‘attractive’ with robust free cash flow. It remains bullish on copper and has a ‘buy’ rating on BHP with a $48.40 price target.

Analyst recommendations