BHP reported an 8% drop in first half revenue, to $25.2bn. That was driven largely by a drop in iron ore and steelmaking coal prices, partially offset by higher copper prices. Underlying cash profit (EBITDA) fell 11% to $12.4bn.
Production at the group level was up 5.3%, with a 10% rise in copper and 1% rise in iron ore.
Free cash flow was down 30% to $2.6bn, reflecting lower profit and a 10% increase in capital expenditure to $5.2bn (full year guidance is for around $10bn). Net debt rose $2.7bn to $11.8bn over the first half.
The group announced an interim dividend of $0.50 per share.
The shares were broadly flat in early trading.
Our view
BHP is battling through a tough time for the mining sector, with several headwinds over 2024 that have brought first-half profits down to their lowest level in six years. Management sees improving trends into 2025 but did warn that rising trade tensions and cost pressures will remain short-term challenges.
The medium-term strategy involves a push into forward-facing commodities, but iron ore is still BHP's cash cow and highest margin asset. Demand's been robust in China and India, but the former is somewhat of a question mark. The Chinese government have put forward a pro-growth mandate, but there’s not expected to be any material change to the demand picture in the near term.
On the cost side at least, BHP has some aces up its sleeve. Western Australia Iron Ore, which produces the bulk of the group's iron ore, has some of the world's lowest production costs. The same can be said for the Escondida copper mine in Chile. That feeds into margins that tend to be higher than its peers.
Future investment is weighted toward growth projects in copper and potash (fertiliser). On the copper side of things, BHP expects demand to be soft in the near term before rising steadily over the rest of the decade, and it’s positioning itself to benefit.
BHP’s copper reserves are some of the largest in the world and production has been steadily ramping up over the past couple of years. Plans are underway for expansions and improvements at new and existing sites over the medium term.
The Jansen project is set to deliver one of the world's largest potash mines. Potash is a little different to the group's other assets - since farmers need it regardless of the economic climate. BHP's aiming to get first production in 2026, ramping up in the 2030’s. It's an $11bn+ investment though, and execution risk is high.
Nickel was once a growth lever, but a global oversupply has led investment in this area to all but grind to a halt. BHP has written down the value of its operations and temporarily suspended production. This shows how quickly a market can change and the risks that miners face when they do.
All in, we think BHP’s low-cost, high-margin assets are attractive and there are several medium-term growth drivers in the mix. But China remains a short-term question mark and BHP's premium valuation puts it first in the firing line if economic conditions, and commodity prices, end up worse than expected.
Environmental, social and governance (ESG) risk
Mining companies tend to come with relatively high ESG risk. Emissions, effluences and waste and community relations are key risk drivers in this sector. Carbon emissions, resource use, health and safety and bribery and corruption are also contributors to ESG risk.
According to Sustainalytics, BHP’s management of material ESG issues is strong.
BHP demonstrates strong ESG commitment with a dedicated board committee overseeing sustainability goals. They are notably aiming for a 40% female workforce by 2025. BHP is positioning itself for a low-carbon future by actively seeking out copper and nickel deposits, which are crucial metals for green technologies. BHP has recently reached a settlement with authorities in Brazil over a damn spill in 2015, bringing an end to the uncertainty - but it does highlight the risks miners face. BHP still owns and operates a small thermal coal business, with plans to cease operations by 2030.
BHP key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
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