Dr BHP

2Q23 PRODUCTION

Need To Know

• Copper South Australia debuts with OZ MInerals contributing.
• WAIO record output but underwhelming FY24 guidance.
• Softer commodity prices fro now, but long term position in copper is unambiguously good.

Investment Implications

The Australian economy may be struggling to lift productivity, but BHP isn’t. Record production at WAIO and Olympic Dam, both tier 1  Australian assets, showed that BHP understands the important drivers of its earnings capability. The acquisition of OZ Minerals has kick-started a renaissance in South Australian activity with Oak Dam exploration adding spice to the new Copper South Australia segment.

Lower commodity prices in FY23 were unsurprising but BHP’s positioning in ‘future facing commodities’, particularly copper and nickel augurs well as the global supply and demand landscape slowly shifts in favour of the miners. As RIO pointed out in its Annual Meeting in May, the IEA (International Energy Agency) predicts the world will need 700mt of copper in the next twenty years if it is to meet the Paris climate goals. Demand for cobalt and nickel could increase 20-fold over the same time period - BHP produces both of these commodities.

This is why the acquisition of OZ Minerals this year has been an important factor in finding a way to unlock the vast potential of Olympic Dam and the adjacent Oak Dam in South Australia. It is not clear yet how BHP will develop the region, but things are finally moving from a state of near torpor.

Iron Ore. Although FY23 total production of 257mt was 1% higher than FY22 and set a new record, the market may be underwhelmed by the FY24 guidance of 254-264.5mt. BHP lifted productivity across its supply chain, rail network and car dumpers to achieve the result. WAIO production guidance for FY24 is 250-260mt (282-294mt 100% basis) as the South Flank continues to ramp up to full production capacity of 80mtpa.

Copper. This division is becoming far more interesting following the acquisition of OZ Minerals and the various growth projects available to BHP to raise the significance of copper to group earnings. FY24 production guidance is 1,720-1,910kt after the FY23 total of 1,716kt included a small contribution from the OZ Minerals assets. In FY24, Copper South Australia is expected to produce 310-340kt.

Escondida production came in at the low end of guidance due to geotechnical events in a high grade section of the pit. The mine plan has been resequenced, but production is expected to increase to between 1,080-1,180kt in 2024 as both grade and concentrator throughput lift.

Other production included 29mt of metallurgical coal in FY23, 14.2mt of energy coal and 80kt of nickel from the Nickel West operations.

The Jansen Potash project is targeting first production at the end of calendar 2026.

Investment View

It’s a slow burn but as the world decarbonises, demand for copper, nickel and associated minerals will jam up against a dwindling supply of mineable copper, hampered by the length of time and regulatory red tape required to get world class deposits into production. BHP has abundant resources to take advantage of the inevitable shortage, and subsequent price rises in these commodities.

Global economic woes are keeping a lid on prices and demand for now, but it cannot be too long before EV manufacturers, wind turbine manufacturers and all manner of decarbonisation strategies wake up to the need for more copper. Meanwhile, BHP’s iron ore business continues to feed China’s massive steel industry.

The stock is a Hold for now, but the upside catalysts are apparent.

Figure 1: BHP Copper production (000 tonnes)

Figure 2: BHP average commodity prices