BHP (ASX: BHP) shares rose 5% after it increased its interim dividend by nearly half, to USD 0.73 fully franked, on a 22% increase in first-half underlying net profit after tax to USD 6.2 billion, or USD 1.22 per share. The payout ratio increased to 60%, above the 50% it paid out a year ago.

Why it matters: BHP also agreed to effectively presell 80% of its share of the Antamina copper and zinc mine’s silver production—a byproduct—to Wheaton for USD 4.3 billion in cash upfront. Given elevated silver prices, we think it’s a smart move.

  • Fiscal 2026 guidance is reiterated, while it raised Escondida’s fiscal 2027 production guidance by about 10% at the midpoint. We also assume increased midcycle copper production led by Escondida.

The bottom line: Higher copper volumes and the Wheaton Precious Metals transaction are offset by increased forecast iron ore unit cash costs and a stronger AUD/USD exchange rate since our last update, and our fair value estimate of $44 for no-moat BHP stands.

  • We think the elevated copper price—BHP’s copper division comprised over half its EBITDA in the period—is the main driver of shares trading 20% above our intrinsic assessment.
  • Spot copper of about USD 5.80 per pound is 10% higher than BHP’s realized copper price in the first half and materially above our assumed midcycle price of about USD 3.80 per pound based on our estimate of the long-run marginal cost of production.

Key stats: We now forecast its share of copper volumes rising to about 1.6 million metric tons midcycle, from 1.4 million metric tons previously, driven by higher Escondida production. However, we forecast midcycle EPS in fiscal 2030 to be broadly flat compared with 2025.

  • As well as copper reverting to our assumed midcycle price, we also assume iron ore falls to about USD 75 per metric ton then, from USD 100 per metric ton now, based on our estimate of the long-run marginal cost of production. This offsets increased production and lower unit cash costs for both commodities.

Copper overtakes iron ore as the largest driver of BHP’s earnings

BHP is the world’s largest miner by market capitalization. Its main operations span iron ore and copper, with smaller contributions from metallurgical coal and thermal coal. It placed its nickel operations on care and maintenance due to low prices in 2024. BHP is also developing its Jansen potash project in Canada. It merged its oil and gas assets with Woodside Energy in June 2022, vesting the Woodside shares it received to BHP shareholders, and exiting the sector. It purchased copper miner Oz Minerals in fiscal 2023, and half of the Vicuna copper joint venture in fiscal 2025.

Commodity demand is tied to global economic growth, particularly China’s. BHP benefited greatly from the China boom over the past two decades. China is BHP’s largest customer, accounting for roughly 60% of sales in fiscal 2025. But we think demand for many commodities is likely to soften as the China boom ends, particularly iron ore, which has disproportionately benefited from the boom in infrastructure and real estate investment.

Its generally low-cost, high-quality assets mean BHP is likely to be one of the few miners that remain profitable through the commodity cycle. Much of its operations are close to key Asian markets, particularly the low-cost iron ore business, providing a modest freight cost advantage relative to some producers such as those in Africa and South America.

BHP correctly values a strong balance sheet to provide some stability through the inevitable cycles and derives some modest benefit from commodity and geographic diversification. Much of its revenue comes from assets in the relatively safe haven of Australia. The development of Jansen in Canada is BHP’s major expansion project, while it is also looking to expand copper production. It is also pursuing modest expansion of its Western Australia Iron Ore operations above 290 million metric tons (100% basis) per year.

The good times during the height of the China boom saw significant capital expenditure, notably on iron ore and onshore US shale gas and oil. Overinvestment in the boom diluted returns to the point where we struggle to justify a moat. As a commodity producer, it lacks pricing power and is a price taker.

Bulls say

  • BHP is a beneficiary of continued global economic growth and demand for the commodities it produces.
  • BHP’s Jansen potash project gives it additional diversification, with potash being less correlated to the other commodities it produces.
  • BHP’s iron ore assets are industry-leading. The company remains well placed to continue low-cost production and increase output with minimal expenditure and an efficiency focus.

Bears say

  • BHP has shown improved capital allocation since its missteps during the China boom, but continuing high commodity prices could encourage it to once again aggressively expand output.
  • With its earnings dominated by copper and iron ore, structurally lower demand from China could lead to significantly lower earnings.
  • Resource companies could face growing sovereign risk as governments under fiscal pressure look to plug budgetary holes by taxing the industry.

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Terms used in this article

Star Rating: Our one- to five-star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, and several other factors. A five-star rating means our analysts think the current market price likely represents an excessively pessimistic outlook and that beyond fair risk-adjusted returns are likely over a long timeframe. A one-star rating means our analysts think the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to capital loss.

Fair Value: Morningstar’s Fair Value estimate results from a detailed projection of a company’s future cash flows, resulting from our analysts’ independent primary research. Price To Fair Value measures the current market price against estimated Fair Value. If a company’s stock trades at $100 and our analysts believe it is worth $200, the price to fair value ratio would be 0.5. A Price to Fair Value over 1 suggests the share is overvalued.

Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn about finding different sources of moat, read this article by Mark LaMonica.