A Dividend Surprise From BHP in August?

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After a solid FY26, BHP’s FY27 production guidance has missed consensus across commodities with copper the standout on lower grades and maintenance.

• BHP Group’s FY27 copper production guidance fell’s short of expectation 
• FY26 iron ore/copper production largely in line with consensus
• Coal production a substantial beat
• Potential for an upside dividend surprise for shareholders in August

By Greg Peel

BHP Group’s ((BHP)) June quarter operational result showed group copper (491.9kt) and iron ore (68.1mt) production largely matched consensus forecasts.

Iron ore sales of 75mt were also in line with forecasts, reflecting improved supply chain performance following prior quarter weather disruptions and maintenance.

Realised prices of US$83.6/t are also in line with the discount to benchmark broadly unchanged versus the first half despite the long-term contract signed with China Mineral Resources Group (CMRG) denominated in yuan.

Western Australian iron ore continues to run strongly with the South Flank above capacity.

Copper pricing was a standout (US$6.53/lb), up 47% year on year.

Coal production proved a clear beat, with BHP Mitsubishi Alliance (BMA) metallurgical coal production of 5.7mt 11% above consensus and NSW Energy Coal (NSWEC) production of 4.2mt, 9% above.

Gold/silver by-product credits remain key tailwinds for BHP’s copper operations, Citi notes, leading to unit cost guidance towards the bottom end of the FY26 guidance range across the portfolio.

Every asset is expected within FY26 unit cost guidance despite a realised AUD/USD of 0.68 versus the company’s 0.65 assumption.

Net debt at stood at $9bn end-June compared to $14.7bn at end-December which is slightly below consensus ($9.5bn), benefitting from asset disposals ($5.2bn) and strong free cash flow.

The receipt of US$5bn from asset sales, mainly the US$4.3bn silver streaming deal struck for Antamina, helped BHP reduce net debt by -40% half on half.

All up, a solid year for what Morgans claims is the “standout best-in-class global diversified miner”.

Attention then turned to FY27 guidance.

Copper Disappoints

FY27 iron ore production guidance is flat year on year at 284mt-296mt, some -1% below consensus.

Ultimately with the risk of strikes, an inventory rebuild following the CMRG discussion and significant maintenance work, FY27 is a holding year, Macquarie suggests, to enable FY28 production to approach 305mtpa.

The 20mtpa Ministers North approval (which will utilise latent capacity) is a sign BHP is preparing for life above 300mtpa, Macquarie argues.

FY27 guidance midpoints imply BMA met coal production -1% below consensus and NSWEC thermal coal production -3% below.

Copper is nonetheless arguably BHP’s most important future-facing commodity.

Group copper guidance missed consensus by -3%, driven by lower feed grades at Chile’s Escondida project and Peru’s Antamina mine, on top of an unscheduled outage at the Carrapateena operation in South Australia (Copper SA) that equates to two months of lost output.

With a lot of the company’s value proposition built on copper growth and South Australia a home for that capital, the unplanned conveyor outage has impacted Copper SA guidance. Macquarie notes 290kt-320kt signifies a -15kt downgrade on FY26 and a -9% individual miss versus consensus.

Overall, group guidance implies a -6% year-on-year fall in copper equivalent output –-a metric that converts the value of various commodities into that of a primary commodity for comparison purposes-– versus prior market forecasts for a drop of -4%.

Ord Minnett now expects a -12% slide in group copper production, primarily driven by the drop in feed grades at Escondida, which accounts for almost two thirds of the group’s copper production.

BHP maintains its Escondida FY27 copper guidance, while flat production expectations at Spence (Chile) and Copper SA are likely to be offset by a slight year on year decline at Antamina.

Citi sees BHP’s copper operating trends being ahead of peers reporting earlier in the week as a key positive, while guidance for better unit costs could be a driver for low-single-digit consensus upgrades to FY26 earnings forecasts.

A -US$2.3bn impairment was booked against Jansen potash, with earnings losses of -US$150m each at Jansen and WA Nickel as expected.

Jansen execution remains the soft point, Morgans notes, albeit the project is now progressing to plan.

Capital Management

Given potential further funds from asset sales of up to US$4bn in FY27, and considering the company’s target range for net debt of US$10bn–US$20bn, Ord Minnett expects the company will pay a higher final dividend when it reports its formal FY26 result in August.

Ord Minnett has raised its forecast payout ratio to 70% from 60%, versus market expectations of 63%.

UBS is assuming a 75% payout, putting its dividend forecast 16% ahead of prior consensus.

Morgans also sees some capital management upside potential with BHP’s full year result release  in August.

Holding Pattern

Morgan Stanley retains an Overweight rating on BHP with an unchanged $67.50 price target.

Morgan Stanley is alone among the six brokers monitored daily by FNArena covering BHP, with the remaining five all sticking with Hold or equivalent ratings.

The stock is still trading in fair value territory, Morgans suggests, but the gradual grind higher in metal price forecasts has seen BHP grow into its larger valuation. The upgrade cycle has only been partly offset by inflationary pressures and forex swings.

BHP’s ability to use productivity gains and procurement clout to offset cost pressures has been material, Morgans notes. This broker has a Hold rating and $60.20 target.

A strong operational result for FY26 was followed by a slight copper guidance downgrade driven by Copper SA. With the asset a home for substantial capital over the next decade, Macquarie warns operational issues may cast doubt on execution risk for investors, given the asset’s mixed history.

Macquarie retains Neutral with a $55.00 target.

Citi retains Neutral with $63.00. UBS is the only broker to cut its target, to $59.00 from $60.00, retaining a Neutral rating.

Ord Minnett maintains a target of $61.00 and a Hold recommendation, with Rio Tinto ((RIO)) Ord Minnett’s preferred exposure in the diversified mining space.

Interestingly, Rio only attracts one Buy or equivalent rating as well (Ord Minnett) among the same six brokers, with four Holds and one Sell (Morgan Stanley).

With only one change, the consensus target for BHP among the six brokers has slipped to $60.88 from $61.05.

Barclays is not monitored by FNArena. It’s response to last week’s production update refers to a “solid finish to FY26 operationally”. Barclays thinks solid cashflows can facilitate a dividend payout ratio of 70% in August.

Barclays equally has a Hold/Neutral-equivalent rating (Equal weight) alongside a price target of GBp2800 (BHP still has a London listing).

RBC Capital mimics Barclays with a Sector Perform rating and price target of $57.00.

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