Steady As She Goes For BHP

Commodities | 11:32 AM

Production beats and misses across the portfolio led BHP Group to a largely in-line result, with FY26 guidance little changed.

• BHP Group’s March quarter result triggered few changes to forecasts
• Iron ore performed strongly on pricing and a dispute resolution with China
• Copper mining proved mixed, but net solid
• FY26 production and cost guidance for the most part unchanged

By Greg Peel

BHP Group’s ((BHP)) March quarter was better than it looked, RBC Capital suggests, but not clean.

Iron ore did the heavy lifting, with stronger realised pricing driven by mix, masking a mixed operational outcome. Volumes were stable and guidance held.

Copper remains solid at a portfolio level, with Copper South Australia (the old OZ Minerals), Escondida, and Antamina offsetting weakness at Spence (all in Chile).

Cost pressure is evident but is largely forex-driven. Guidance is unchanged and the balance sheet is supported by Wheaton proceeds, RBC notes, reducing risk into year-end.

Under its deal with Wheaton Precious Metals, BHP will receive an upfront payment of US$4.3bn and in exchange deliver silver to Wheaton calculated by reference to its share of silver produced at the Antamina mine.

Iron Ore

A key positive from the result was the resolution of the months-long dispute with China Mineral Resources Group (CMRG), the state-owned buying agency for steel mills, although no details on pricing were provided.

UBS suggests the interplay of iron ore price moves and the move to the 61% iron benchmark index from January has offset the -US$2-US$3 a tonne haircut the company had to take on its Jimblebar and Newman fines products during the dispute.

News of the relaxation of the import ban follows BHP's CEO-elect Brandon Craig and CEO Mike Henry visiting China and meeting with CMRG, Baowu and Chalco executives.

Otherwise, Western Australia iron ore shipments of 69.8Mt slipped seasonally quarter on quarter by -10%, disrupted by cyclones, port closures and maintenance, but were up 4% year on year versus a weather-impacted March quarter last year, UBS notes.

Citi points out BHP’s seasonal decline was better than the -21% decline reported by Rio Tinto ((RIO)) for Pilbara shipments over the same period, with BHP less impacted by cyclones than its rival.

Iron ore price realisations at US$85.4/t are largely flat quarter on quarter and in line with expectation.

Record material mined (up 7% year on year) and inventory drawdowns at Mining Area C and the South Flank in support of portfolio mix change during CMRG negotiations was complemented by improved car dumper and rail performance and inflows.

Copper

BHP’s copper production of 477kt remained broadly stable versus last quarter and met consensus expectations.

The key positive from the results came from gold/silver production, which are by-products of copper mining, and, despite prices correcting during the period thanks to Trump’s war, remain elevated. Rio Tinto enjoyed the same benefit in the period.

Production improved to 144koz for gold and 4.9moz for silver, both increasing marginally versus last quarter, Citi notes.

Escondida copper production of 303kt was above consensus, as underlying mine performance (throughput, recoveries) helped to offset planned grade decline, UBS reports. Spence production was again soft versus consensus due to ore complexity and variation.

Macquarie points out Spence's miss was attributed to equipment reliability issues which resulted in variability of on-spec grade presenting to the mill. Spence has since rectified the issue, enabling its reduced target.

Process modifications should de-risk performance from 2028, Macquarie suggests.

Copper South Australia is performing in line with its strong production underpinned by robust operational performance (record material moved at Olympic Dam).

Coal

The BHP Mitsubishi Alliance (BMA) is Australia’s largest coal producer, operating five met coal mines in Queensland’s Bowen Basin, which suffered its highest rainfall in 15 years in the period.

Production of 3.8mt was thus below consensus. The open cut mines performed well, UBS notes, with stripping volumes at their highest level in five years, though this was offset by the weather, ongoing geotechnical issues at Broadmeadow, plus Saraji South being placed on care & maintenance.

Price realisation at US$227/t for met coal nevertheless increased 15% versus last quarter, reflecting the strong flow-through of spot prices.

BHP’s NSW Energy Coal’s (thermal coal) operation at Mt Arthur produced 4.0mt, some 10% above consensus.

Potash

Jansen Potash (Canada) Stage 1 is now 78% complete and on track for first tonnes mid-2027.

The Stage 2 review is due this quarter and could be a catalyst/signal on CEO-elect Brandon Craig's strategic and economic appetite for Jansen within the broader BHP portfolio.

In UBS’ opinion, Jansen is a tier-1, BHP-style asset but a delayed and more expensive build has been frustrating for shareholders.

Guidance

BHP did not provide quantitative guidance on the impact of the Middle East war, simply noting “centralised procurement capability and low-cost operations have positioned us advantageously” to cope with soaring energy and input costs and securing supply.

Macquarie sees BHP as suffering similar iron ore cost pressures to Rio Tinto on fuel and inputs.

Otherwise, BHP’s FY26 guidance for production of 284-296mt, and unit costs of US$18.25-$19.75/t is unchanged.

BHP now expects Escondida copper production in the upper half of its guidance range of 1,200-1,275 kt, while Antamina production has been increased to 150-160kt from 140-150kt. This is offset by lower production for Spence to 210-220kt from 230-250kt.

While while copper guidance is unchanged at 1.9-2.0mt, the guidance is for upper half production in FY26, Citi notes.

Better production at key mines and higher gold/silver revenues have led BHP to lower Escondida unit cost guidance to US$1.0-1.2/lb, versus earlier guidance of US$1.2-1.5/lb.

FY26 met coal production is still guided to the lower half of the 36-40mt range, and unit costs are now guided to the top end of the US$116-$128/t range.

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