BHP’s pitch after its failed Anglo bid is nowhere near copper bottom

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These days, miners looking to shine need exposure to copper, the forward-looking commodity whose price is expected to rise as the energy transition wraps power cables around the earth. BHP is no exception. Following the failed bid by which it hoped to gain control of Anglo American’s copper assets, it sought to develop its potential for organic growth in this area. However, his pitch lacks copper bottom.

BHP’s first problem is that it is in the middle of the pivot. The miner has made progress in reorienting its portfolio to one that benefits rather than suffers from the energy transition, shedding oil and coal assets. However, copper accounted for less than 30% of core ebitda in the year to June 2024. Almost 65% came from iron ore.

Here, the outlook is dull. The offer from major manufacturers is increasing. Problems in China’s real estate sector are reducing demand. True, BHP is relatively well positioned for a downside. It is right at the bottom of the cost curve and has reasonable hopes that higher cost producers will be pushed out. Meanwhile, she too will suffer. With every dollar in iron ore costing it $233 million in ebitda, the commodity’s near-term performance weighs heavily on investors’ minds.

BHP’s second problem is that while it has managed to rustle up a fair number of copper projects, both organic and acquired through bolt-on deals, they are far from delivering appreciable production growth. The miner has put its best foot forward, increasing copper production by an industry-leading 300,000 tonnes over the past two years. However, according to Barclays estimates, its production in 2030 will not be entirely different from today’s 1.9 million tonnes, with increases only coming after that date. Indeed, despite BHP’s play aspect, its laden growth underlines why it seemed a crack at Anglo in the first place. It also explains the continued M&A speculation.

The problem is that picking up copper assets on the cheap is hard to do in a market that seems to be entirely populated by copper bulls. The strong performance of Chilean copper miner Antofagasta, whose shares have gained nearly 30% over the past year, compared with diversified groups such as BHP and Rio Tinto, gives an indication of the value gap that has opened up. In the absence of reasonable opportunities, the next stage of BHP’s transformation will be a slow process.

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