ii view: BHP profits tumble but optimistic about commodities demand

Full-year results to 30 June

• Revenue down 8% to $51.3 billion (£37.9 billion)
• Adjusted profit down 26% to $10.16 billion 
• Final dividend of 60 US cents per share, down from 74 US cents per share
• Total dividend for the year down 25% to $1.10 per share 
• Net debt of $12.9 billion, up from $9.1 billion

Chief executive Mike Henry said:

"FY25 was another strong year for BHP, marked by record production, continued sector-leading margins and disciplined capital allocation. 

“We remain confident in the long-term fundamentals of steelmaking materials, copper and fertilisers, which are critical to global growth, urbanisation and the energy transition. Backed by a diversified portfolio of large, long-life assets, disciplined low-cost operations and a strong balance sheet, BHP is well-positioned to deliver enduring value through the cycle."

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ii round-up:

BHP Group Ltd (LSE:BHP) today detailed lower annual profit given an oversupply of coal, but with the miner pursuing growth in copper and potash production to power energy transition and expected population growth.  

Full-year revenue fell 8% to $51.3 billion, driving adjusted profit down 26% to $10.16 billion. A final dividend of 60 cents per share proved marginally ahead of City forecasts although with no share buyback programme announced. 

BHP shares rose 2% in UK trading having come into these latest results down 4% over the last year. That’s similar to fellow iron ore focused miner Rio Tinto Ordinary Shares (LSE:RIO). Copper miner Antofagasta is up 12% and the FTSE 100 index has risen almost 10% over the last year.  

BHP operates largely across Australia and North and South America. Commodities mined include iron ore, copper, steelmaking and energy related coal, as well as potash used to produce fertilizers.

Accompanying management comments pointed to a mixed global economic outlook, hindered by shifting trade policies but with demand for commodities staying strong, particularly in China and India.

Coal prices fell by more than a fifth over the last year but with new China policies and blast furnaces in Asia expected to support markets in future. The price of iron ore is down 2% year-to-date. Copper is up 12%. 

BHP expects annual capital expenditure to rise to around $11 billion over the medium term, up from $10 billion in 2025, as it expands copper production at Samarco in South America and potash output at Jansen in North America. 

Group net debt of $12.9 billion rose from 2024’s $9.1 billion, with management now targeting a range of $10-20 billion compared with $5-15 billion previously.

A third-quarter production update is scheduled for 21 October. 

ii view:

Tracing its roots back to 1851, BHP today operates in more than 90 locations across the world. Iron ore generated most sales in 2024 at about half, with copper around a third and coal approximately 14%. Geographically, China sales in 2024 totalled 62% with other major customers Japan at 8%, India at 6% and South Korea 5%. 

For investors, economic outlook uncertainty, and particularly for its biggest customer China, cannot be overlooked. Profits for this latest year are at a five-year low. A forecast price/earnings (PE) ratio above the three- and 10-year averages may suggest the shares are not obviously cheap, while the environmental impact of mining also warrants firm consideration. 

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To the upside, measures are being taken by China’s government to aid economic strength, with US trade tariff talks also ongoing. A step up in potash production is expected before 2030, with output of copper likely to rise from around 2030 onwards. A strong balance sheet persists with potential future net debt of $20 billion still expected to leave the ratio of adjusted profit to debt at below one times, while a focus on safety resulted in no on-the-job staff fatalities in the last financial year.   

For now, and despite continuing risks, a forecast dividend yield of close to 4% is likely to retain support among long-term fans of this mining giant.  

Positives

• Exposure to a diverse portfolio of commodities
• Robust balance sheet

Negatives

• Economic outlook uncertainty
• Western tensions with major customer China

The average rating of stock market analysts:

Hold