BHP Crowns Itself The Asset Savvy Copper King

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This story features BHP GROUP LIMITED, and other companies.
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BHP Group's first half copper earnings exceeded those of iron ore for the first time, with a much lauded silver deal as unexpected bonus.

• BHP’s copper earnings exceed iron ore for the first time
• First half dividend significantly above forecasts
• Silver streaming deal the highlight
• Could a gold streaming deal be next?

By Greg Peel

BHP Group’s ((BHP)) iron ore earnings rose 4% year on year in the first half FY26 but fell modestly short of consensus expectations, due largely to a -7% year on year fall in average prices. 

While one might expect this would be the focus of analyst assessments of a result from one of the world’s largest iron ore miners, one would be quite mistaken.

Indeed, the iron ore division barely rates a mention, due to a couple of significant events that drew all the attention.

Firstly, BHP’s copper earnings surpassed iron ore as the largest contributor to group profits for the first time.

Copper earnings soared 59% year on year and accounted for 51% of underlying group operating earnings, up from 39% a year ago, underpinned by a 12 percentage points lift in BHP’s divisional earnings margin to 66%, driven by soaring copper prices and operational leverage.

The company’s focus on copper will only intensify in coming years, Ord Minnett notes. BHP estimates the global market for the red metal requires an additional 10Mt of new production to balance supply and demand by 2035. The miner is targeting a growth rate of 3-4% per annum from its assets to circa 2.5Mt per annum of copper equivalent metal by FY35.

Vicuna, BHP’s copper-gold-silver joint venture with Canada’s Lundin Mining on the Argentina-Chile border in the Atacama Desert, will play a material role in this. The company flagged -US$800m in project studies with an eye to a final investment decision on stage one by the end of calendar 2026.

Secondly, another highlight of the result was BHP’s monetisation of future silver by-product production from its 33.75% owned Antamina copper-zinc mine in the Andes in Peru. Under the streaming deal, BHP will receive US$4.3bn from Canada’s Wheaton Precious Metals for delivering its share of silver production to Wheaton.

Morgans points out this is the largest streaming transaction ever by upfront value.

Morgans views the deal as shrewd capital management: monetising a non-core by-product at a valuation (US$4.3bn) roughly equal to the broker’s US$4.4bn value for the entire Antamina stake.

For Morgans, the silver deal was the highlight of the result, and in the broker’s view more than wipes the recent budget blowouts at the company’s Jansen potash project, justifying BHP’s premium.

Crucially, notes Ord Minnett, in the wake of the silver deal, BHP retains full exposure to Antamina’s copper and zinc production, which is forecast to account for more than 80% of Antamina’s future revenue. Ord Minnett estimates the deal, which is expected to complete in early April, is worth circa $0.45 a share to BHP’s share price.

Coming back to iron ore, briefly, when the Antamina deal is combined with December’s deal with Global Infrastructure Partners (Blackrock) in relation to BHP’s share of Western Australia Iron Ore’s inland power network, BHP expects more than US$6bn of second half cash inflows, with a potential US$10bn pipeline flagged.

Big Dividend Beat

BHP’s first half results came in broadly ahead of expectations. Earnings (EBITDA) of $15.5bn were 3% ahead of consensus, while free cash flow at $4.3bn was also ahead. Headline earnings per share at $1.11 fell -6% short of consensus with higher tax driving the ‘miss’.

BHP’s reported dividend of US73c, representing a 60% payout, beat consensus by 16%. BHP has paid circa an extra -US$800m, Morgan Stanley notes, supported by asset sales.

Earnings quality continues to step forward, Morgans suggests, maintaining robust operational and cost performances across the portfolio.

Guidance

BHP is guiding for 1.0-1.1Mt copper production at Escondida (Chile) –-the world’s largest copper mine– in FY27.

The production guidance is encouraging, Citi suggests, in the context of 900-1,000 kt guidance for the medium term and follows the earlier announcement of higher grades-led upgrade to FY26 copper production guidance at Escondida.

Unit cost expectations are unchanged, but are expected at the lower end of the guidance range at $1.20-1.50/lb. Citi also flags unit cost guidance at Copper SA is unchanged at $1.0-1.50/lb, but the embedded pricing at 2,900/oz for gold and $70/lb for uranium implies better unit costs versus the guidance.

Copper SA (South Australia) is effectively the old Oz Minerals operations BHP acquired.

With regard Jansen (Canada), as expected there was no substantive update on the China Mineral Resources Group (CMRG) negotiations. Outcomes remain a key overhang, Macquarie warns, and could present risks to realised pricing.

The upcoming Jansen stage 2 capex review is considered a key catalyst and will test capital discipline.

Macquarie would challenge whether stage 2 should proceed given it may eat into stage 1 returns. Management will want to gain capital synergies, but the broker sees it as an escalation of commitment.

Given silver streaming success, Macquarie sees potential gold streaming opportunities, namely a partial stream sale to funding part of Copper SA Phase 1’s capital spend (gold is a by-product of copper mining).

While BHP craves full economic exposure, taking money off the table lowers return volatility and captures a valuation arbitrage for investors today, Macquarie notes.

BHP suggests any decision requires a solid technical assessment to ensure upside is not prematurely surrendered.

For the record, iron ore guidance is unchanged.

Still a Hold

Morgan Stanley’s investment thesis on BHP is unchanged, and this broker expects meaningful upgrades to consensus earnings forecasts over the next twelve months.

Morgan Stanley retains an Overweight rating, but is the only broker among the six monitored daily by FNArena covering BHP to have a Buy-equivalent recommendation.

Ord Minnett sticks with its Accumulate rating which, on this broker’s five-tier scale, sits between Buy and Hold.

Citi also sees consensus lifting underlying earnings for FY26 and FY27, but retains Neutral.

Macquarie believes BHP’s result marked a significant milestone in the evolution of the company, showing a copper growth pathway liberated following recent transactions (Filo de Sol, ie Vicuna, and Oz Minerals).

The longer-term growth trajectory and funding pathways are apparent to this broker, with yield investors’ needs also met via a higher payout ratio.

Macquarie nonetheless sticks with Neutral.

Morgans sees BHP as ideally positioned to offer attractive capital management upside risk and a much simpler investment thesis. While its share price is trading marginally above fair value, Morgans continues to view the total shareholder return profile as justifying maintaining a core position in the big miner.

As capex cycles and copper growth take shape, Morgans sees plenty of reasons beyond the dividend to maintain BHP as a preference over Rio Tinto ((RIO)). Morgans also maintains a Hold rating.

UBS also has a Neutral rating, and has raised its price target to $52 from $47. This broker observes how BHP shares have re-rated over the months past, and believes this re-rating will hold over the twelve months ahead, with valuation and general context expected to remain supportive.

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