BHP’s copper pivot is paying off

{"text":[[{"start":2.742,"text":"Not long ago, BHP had spooked investors. Repeated attempts to buy rival Anglo American, the owner of coveted copper mines, gave the impression of a company that wasn’t overly convinced of its own growth prospects. Now, however, such fears appear positively quaint."}],[{"start":18.865,"text":"For one thing, the world’s largest miner is benefiting from high copper prices. The metal made up just over half of adjusted ebitda of nearly $33bn for the year to June, beating analysts’ expectations and standing up to iron ore, BHP’s old high-margin cash machine. And for another, its capital expenditure programme is set to deliver a 40 per cent increase in attributable copper production between 2027 and 2035 thanks to giant projects such as Jansen and Escondida, with free cash flows growing by 150 per cent in the period."}],[{"start":53.735,"text":"The market has woken up to BHP’s potential. Since 2022, its enterprise value as a multiple of ebitda has roughly doubled, from below four times to about eight times — not far off the level for Antofagasta, a dedicated copper miner. That has helped it outperform Rio Tinto and Anglo, in particular this year."}],[{"start":null,"text":"

"}],[{"start":74.56,"text":"There may be some further upside too: analysts are pencilling in roughly 2 per cent growth in copper production a year between 2026 and 2035, according to Royal Bank of Canada. That’s less than half the rate the company believes it will achieve."}],[{"start":88.98,"text":"But the flipside here is that investors are now paying up for BHP to deliver on complex mine expansions from Chile to South Australia, while hoping that it avoids the cost overruns like those that dogged its investments in potash. It also has to be lucky. Copper supply is broadly constrained, but it is not inconceivable that higher prices today could bring far more online than seems possible now. After all, in 2014 a glut emerged not long after confident predictions of tight supply had become the standard industry view."}],[{"start":120.853,"text":"Another risk is that the copper focus consumes BHP management so that its other businesses — the very point of owning a diversified miner — are neglected. Equity markets are currently rewarding every spare penny of cash flow being directed to copper growth. Iron ore can seem like yesterday’s metal, but it is still a 60 per cent margin business. BHP also wants to keep hold of Australian steelmaking coal mines, where it sees decades of demand from India as well as productivity gains. But it is not currently investing growth capital in these assets, which are dearer to run than half their peers."}],[{"start":157.348,"text":"Still, BHP’s copper pipeline looks increasingly convincing. As the world’s largest producer of the red metal — needed everywhere from grids to data centres — it should have a rosy period ahead."}],[{"start":172.91,"text":""}]],"url":"https://audio.ftcn.net.cn/album/a_1787107076_9543.mp3"}