BHP: Key Commodities Iron Ore and Copper Have Solid Year

BHP’s BHP fiscal 2023 fourth-quarter production was modestly lower than our expectations. The company’s share of sales from its Western Australia iron ore business was roughly 250 million metric tons for fiscal 2023. This was similar to fiscal 2022 but slightly lower than production, with 4 million metric tons shipped to ports in China but not yet sold. Unit cash costs at BHP’s iron ore division, which accounts for about 55% of our forecast 2023 EBITDA of roughly USD 30 billion, are likely to be similar to our estimate of around USD 19 per metric ton when the company reports fiscal 2023 earnings in August. After incorporating BHP’s latest guidance, we now forecast Western Australia iron ore sales of about 255 million metric tons in fiscal 2024, down from about 265 million previously but a modest increase from fiscal 2023. The company’s new South Flank mine continues to ramp up to full capacity of 80 million metric tons (on a 100% basis), likely in calendar 2024.

We retain our AUD 39.50 fair value estimate for no-moat BHP. The shares trade at around a 13% premium to fair value, which we think is due to high near-term iron ore prices and optimism over potential additional stimulus from the Chinese government. China remains the biggest source of demand for most commodities, constituting about 70% of seaborne iron ore demand and around half of copper demand.

Copper sales of roughly 1.3 million metric tons were about 12% higher than fiscal 2022, driven by increased production at BHP’s 57.5%-owned Escondida mine in Chile and its 100%-owned South Australia mines. Fiscal 2023 copper sales included two months of production from Prominent Hill and Carrapateena, which BHP acquired when it bought Oz Minerals in May. Elsewhere, its Jansen potash project in Canada is under construction, with the project expected to produce around 4.4 million metric tons of potash per year when it comes online later this decade.