Coal-fired bumper profits expected from BHP, but most eyes on copper acquisition play
BHP chief executive Mike Henry is expected to deliver another set of bumper profit results on Tuesday, but all eyes will be on the company’s growth strategy.
Strong coal prices are expected to deliver improved profits for BHP when the company delivers its full-year results on Tuesday, but most eyes will be on the company’s moves in the copper market.
Analysts’ consensus estimates tip BHP’s underlying earnings before interest and tax at $US34.56bn ($48.5m) for the last financial year, with strong coal pricing helping the company beat the $US30.29bn EBIT delivered last year.
Iron ore profits will fall along with pricing, analysts say, with underlying EBIT of $US19.4bn tipped at 20 per cent below last year’s mark. But underlying coal profit of $US8.48bn – a $US9bn turnaround in a year – will more than make up for falling iron ore prices.
But, while BHP is tipped to deliver copper results broadly in line with those of last year, at about $US6.7bn, the strategy around the company’s $8.4bn move on OZ Minerals is likely to be a major focus for investors and analysts.
Capturing OZ Minerals would not be transformative for BHP.
In the short term it would add 120,000 to 135,000 tonnes of copper and more than 200,000 ounces of gold to BHP’s production profile each year – effectively another Olympic Dam – and perhaps as much as 200,000 tonnes a year when the block cave at OZ Minerals’ Carrapateena mine is completed.
If built, OZ Minerals’ West Musgrave project would add another 28,000 tonnes of copper and 22,000 tonnes of nickel, based on the project’s 2020 feasibility study.
There’s no doubt the basin play represented by the acquisition of OZ Minerals’ South Australian assets would give BHP far more options at Olympic Dam than it currently has, given BHP has now considered and rejected a plethora of expansion options for the giant deposit.
A basin development plan would certainly put the option of a larger smelter development on the table, for example, make mine scheduling easier, and deliver substantial exploration potential.
And West Musgrave could help replace nickel currently provided by mid-tier miners, and certainly improve the balance of product fed into BHP’s Kalgoorlie smelter, where options for a furnace rebuild are still being considered.
But in either case, acquiring OZ Minerals is not a game changer for either BHP’s copper or nickel divisions.
Behind the scenes BHP has been keen to describe its play for OZ Minerals as “nice, but not necessary” – it delivers value at the price on offer, but there is a limit, and that BHP will not bid against itself.
It may bump the offer if a rival emerges, otherwise it will wait until OZ Minerals’ share price falls below its offer price and hope pressure grows on the OZ Minerals board to engage.
BHP CEO Mike Henry will face plenty of questions about his growth strategy on Tuesday in light of the company’s bid for OZ.
But his strategy has been consistent from his November 2019 appointment to BHP’s top job, when Mr Henry said his focus would be to “unlock even greater value from our ore bodies and petroleum basins by enabling our people with the capability, data and technology to innovate and improve”.
At his presentation to the Bank of America Global Metals, Mining and Steel conference in May, Mr Henry outlined those same priorities.
Growth from organic sources was the top priority – in copper that means Escondida, Spence, Antamina and Olympic Dam.
Then comes growth from innovation and new technology, with research into leaching still one of the likely keys to expanding Olympic Dam. Exploration comes next, from BHP’s own efforts and from partnerships with junior explorers.
Buying assets still sits last, and chief development officer Johan van Jaarsveld was asked to compete with all of those other options to win board approval for a bid for OZ Minerals.
Under Mike Henry, BHP is also moving towards a “fail fast” strategy.
The company’s innovation and technology team is said to have a portfolio of around 60 internal growth projects under consideration – it has already abandoned eight so far this year and replaced them with other options.
BHP first launched its bid for Canada’s Noront Resources in late July 2021. By Christmas it had quit the field, deciding it would not top the final offer of Andrew Forrest’s Wyloo Metals.
Absent a bidding war for OZ Minerals, BHP seems to be signalling it is happy to wait for the miner to engage before moving any further.
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