BHP’s diversification into copper and fertiliser to support future earnings growth.

About BHP Group Limited

BHP Group Limited (BHP, the Group, ASX: BHP) is the world’s largest mining company by market capitalisation and produces essential commodities including iron ore, copper, and metallurgical coal and is moving into potash.

Strong Underlying Financial Performance

BHP delivered Underlying FY24 EBITDA of US$29 billion at a margin of 54 percent, resulting in Underlying profit of US$13.7 billion, an increase of 2 percent compared with FY23. Iron ore contributed 64 percent of BHP’s Underlying EBITDA in FY24.

Revenue was US$1.8 billion higher at US$55.7 billion, primarily because of higher realised prices across iron ore and copper where sales volumes increased 3 percent and 5 percent respectively.

Operating cash flow was exceptionally strong at US20.7 billion, which funded capital and exploration expenditure of US$9.3 billion and reduced debt by US$2.1 billion to USS$9.1 billion. This saw BHP’s gearing ratio decline to just 15.7 percent, down from 18.7 percent at June 2023.

Underlying earnings per share came in at US$2.70 while basic earnings per share was US$1.56. BHP’s full year dividend is US$1.46 fully franked, including a final dividend of US74 cents per share, payable on 3 October. This dividend represents a 54 percent payout ratio.

Investing for Future Growth

BHP’s future annual capital expenditure is likely to be around US$10 billion annually, and sixty-five percent of BHP’s medium-term capital investment has been allocated to copper and potash. This is after BHP invested US$3.2 billion on copper projects and copper exploration and US$1.1 billion on its Canadian potash project in FY24. These are commodities that can drive BHP’s earnings higher for decades to come.

Traditional demand for copper remains solid for applications such as homebuilding and electrical equipment. However, demand from emerging sectors such as Artificial Intelligence, Data Centres and infrastructure required to connect renewable energy sources to the grid is adding to this. Copper is the world’s third most widely used metal after iron and aluminium.

BHP is already one of the world’s largest copper producers at 2 million tonnes per annum and has a pipeline of copper projects under development in Chile and Australia.

Potash is an essential ingredient for fertiliser. The confluence of rising population, changing diets and the need for more sustainable intensification of agriculture on the world’s finite arable land creates a compelling demand picture for fertiliser. BHP has committed a further US$4.9 billion investment that will increase its potash production capacity to 8.5 million tonnes per annum, representing 10 percent of the estimated global market when fully ramped up. Initial production commencement is planned for the end of calendar year 2026, with a two year ramp up period.

Iron ore Outlook

BHP is the world’s lowest cost iron ore producer at a unit cost US$18.19 per tonne in FY24, which is up slightly on the FY23 unit cost of production at US$17.91 per tonne. Production in FY24 was 255 million tonnes, and FY25 production is estimated at between 282 – 294 million tonnes per annum. Unit costs of production in FY25 are expected to be in the range of US$18 and US$19.50 per tonne. BHP estimates its medium-term iron ore production outlook at more than 305 million tonnes per annum. Today’s iron ore price is about US$98.30 and compares with the US$101 average realised price in FY24, which was 9 percent higher than FY23.

Over the medium term, China’s demand for iron ore is expected to be lower than it is today as the ratio of scrap-based steel making rises. BHP expects that demand for iron ore from developing countries in Asia and India to offset this demand to a degree.

Commodities Leveraged to Global Megatrends and GDP Growth

BHP’s globally significant, high-quality, long-life assets are leveraged to irreversible global megatrends like urbanisation, population growth, higher living standards and the clean energy transition. Combining these megatrends with global GDP growth ensures consistent demand and firm prices for BHP’s commodities. These megatrends are widely accepted as given, while economic growth is no accident – despite short-term fluctuations, global GDP has grown consistently throughout history, so economic growth isn’t about luck, it’s how the world works!

Diversified across iron ore, copper, nickel, coal, and potash, with minimal debt and low-cost operations, BHP is well placed to respond to an uncertain and relatively volatile operating environment. The Chinese steel-intensive real estate sector remains soft and is dependent on policymaker support to underwrite its recovery. However, sectors important to copper demand like power infrastructure, transport and consumer durable goods are showing signs of steady recovery.  Against this backdrop of lower Chinese steel production, capital investment in India is supporting commodity demand linked to the steel and manufacturing sectors.

The long-term outlook for steel, copper and fertilisers remains positive and is supported by population growth, rising living standards, and the infrastructure required for decarbonisation and electrification within the developed world. These factors should support ongoing value accretion for long-term BHP shareholders.