Copper Fever: The Unlikely Driver Behind BHP’s Surging Profits

BHP’s latest financial results demonstrate the enduring significance of copper in the global economy. As the company prepares to pay its highest dividend in four years, investors and analysts are trying to understand what this means for commodities trading.

Underlying profit rose 30% to $13.2 billion in the year ending June 30, driven largely by a 15% increase in revenue to $58.8 billion. Copper is the primary driver of growth at BHP, outpacing iron ore in terms of contribution to underlying earnings before interest, taxes, depreciation, and amortization (Ebitda). The metal generated significant free cash flow, making its growth self-sustaining.

BHP’s new chief executive, Brandon Craig, emphasizes the company’s diversification efforts. However, the numbers suggest that copper is the true engine of growth at BHP. This has raised concerns among some analysts that the company’s share price may have risen too rapidly.

Copper’s resurgence is closely tied to its increasing demand in digital technologies such as AI data centers and renewable energy infrastructure. As the world becomes more electrified, demand for this versatile metal will likely continue to rise.

Some investment analysts are taking a cautious view of copper’s prospects. RBC Capital Markets has warned clients that while BHP’s outlook is positive, its share price target is A$57 ($39.90) – down 11.4% from its current level of A$64.72 ($45.30).

BHP faces challenges in the coal sector due to high Australian taxes, which have depressed prices. While coal may not be BHP’s future, its legacy operations continue to affect the company’s overall financial performance.

The Canadian potash fertilizer project, Jansen, is nearing production start-up in mid-2024 and has the potential to establish BHP as a major player in another essential commodity market.

As investors and analysts digest these results, one thing is clear: copper’s resurgence is not just a BHP story but a symptom of a wider trend reshaping the global economy.

Reader Views

TC
The Cart Desk · editorial
While BHP's copper-driven growth is undoubtedly impressive, investors should be wary of the cyclical nature of commodities markets. The company's reliance on copper prices is a double-edged sword – while rising demand for electrification and digital technologies drives profits today, a downturn in these sectors could send copper prices plummeting tomorrow. Brandon Craig's diversification efforts are laudable, but they can't entirely mitigate the risks associated with BHP's exposure to commodity price fluctuations. A more nuanced view of BHP's financial performance is needed to separate its underlying value from its current market momentum.
SB
Sam B. · deal hunter
Copper's resurgence is indeed the main event here, but I think some analysts are missing the bigger picture - this commodity bubble is not just about digital technologies and renewable energy. The price of copper is also being artificially inflated by supply chain disruptions in China and a weak US dollar. Once these factors normalize, we might see a correction in copper prices, which could impact BHP's bottom line more than anyone is letting on right now.
PR
Pat R. · frugal living writer
BHP's copper bonanza is all well and good, but investors should be wary of putting too much stock in this one commodity. Remember that copper prices can be volatile, and a downturn could quickly erase these gains. Furthermore, BHP's diversification efforts are commendable, but what about the long-term sustainability of its other projects? The Jansen potash project, for instance, is still in development – how will it contribute to underlying earnings once it ramps up production? A more nuanced view of BHP's financials would account for these variables and not just focus on copper's shining star.

BHP Rides High on Copper Demand

Copper Fever: The Unlikely Driver Behind BHP’s Surging Profits

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