Here are 5 key takeaways from the FY24 results of BHP that you may’ve missed

5 key takeaways from the FY24 results of BHP

1. Copper will be where ‘it is at’ from hereon in

BHP’s reputation has been made in iron ore, but copper will be its future. Iron ore is still a critical part of the business, generating 65% of the company’s underlying earnings and thus underpinning its enormous dividend. However, the iron ore market is not expected to reach the highs of previous years because China’s demand for iron ore is not returning to pre-pandemic levels. Copper, meanwhile, is expected to be in hot demand in the years ahead, hence why BHP’s copper division received double the capex that iron ore did. Specifically, it is going towards its copper assets Olympic Dam and Oak Dam in South Australia, Escondida in Chile and a couple of new projects in Argentina.

2. Iron ore demand has permanently peaked

Demand for iron ore over the last two decades has been driven by China’s intensive growth, requiring steel which iron ore goes into. Obviously, the level of demand from China was never going to last forever. But demand has slowed down very quickly in conjunction with the Chinese economy. China is still growing, just not as fast as before. What’s more, this new era (less reliant on property construction) will be less steel-intensive, and the steel needed may use recycled scrap iron instead of fresh minerals newly mined from Western Australia or Brazil. BHP has told investors it expects the iron ore market will be in surplus this calendar year, and many high-cost producers will have to scale back, or perhaps even go out of business. The saving grace for investors is that BHP is the world’s lowest cost producer of iron ore.

3. BHP is keen to undertake more acquisitions

The fact that it tried to buy Anglo American shows it is hungry for more assets, particularly copper assets. And the company has a war-chest for it. Despite having US$9.1bn in net debt, this is still in the target band of US$5-15bn. If it wants to buy anything as big as Anglo American, it is plausible that it may need to raise dilutive equity capital, reduce or halt paying dividends – maybe even both. Investors should watch this space to see what happens next.

4. BHP is bearish on nickel

As is everyone. BHP was not the only company to write off nickel assets, which it did to the tune of US$2.7bn. But unlike other companies, it did not join in the chorus of pleas for the WA and federal governments to support the sector. The company has told investors it will spend money to ensure the assets can be revived if and when prices come back, but it may be a few years away. At least BHP’s nickel assets were a small proportion of its portfolio, something that cannot be said of other companies.

5. The company is walking the walk on its ESG goals

Argue all you like about whether or not ESG is necessary, but companies should not be talking the talk if they cannot walk the walk. Operational greenhouse gas emissions have been reduced by 32% since FY20, although emissions did go up by 1% in the past 12 months. Female employee workforce participation has more than doubled in the last 18 years, and it nearly doubled its spend on Indigenous partnerships. BHP paid US$11.2bn in taxes around the world with an effective tax rate of 41.7% taking into account revenue and production-based royalties paid on top of general corporate taxes. And it made a total economic contribution of US$49.2bn, including US$7.7bn in dividends to shareholders and US$41.5bn to suppliers, contractors, employees, governments and voluntary investment in social projects across the communities where it operates.

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