BHP’s (ASX: BHP) key iron ore and copper divisions are performing well. Second-quarter Western Australian Iron Ore sales of 67 million metric tons and copper sales of 365,000 metric tons are up 4% and 2% on last year, respectively. But yet more capital investment to build Jansen has shares down 2% in response.

Why it matters: Management guides construction costs for Stage 1 of its Jansen potash project in Canada to be around USD 8.4 billion, up USD 1.2 billion from the midpoint of its previous estimate, itself raised from USD 5.7 billion initially. Though it confirms initial production from mid-2027.

  • Stage 1 will produce 4.1 million metric tons of potash once ramped up, likely by fiscal 2030. We now estimate Stage 2 capital expenditure of USD 6 billion, up from the current USD 4.9 billion guidance, and push back Stage 2 full production of 4.4 million metric tons by a year to fiscal 2034.
  • Copper production guidance is raised slightly, and we now estimate 1.41 million metric tons (its share), up from USD 1.37 million. Escondida unit cash costs are guided to the bottom end of their USD 1.20 to USD 1.50 per pound range, and we now estimate USD 1.30, down from USD 1.40.

The bottom line: Jansen is minor in the scheme of things, comprising around 6% of no-moat BHP’s unchanged $44 per share fair value estimate, which is driven by its iron ore and copper businesses. Guidance updates for Samarco and its coal businesses also see only minor changes to our estimates.

  • Shares trade around 9% above fair value, likely due to recent strong increases in the copper price to around historical highs of USD 6 per pound. This is due to near-term supply challenges and optimism over rising demand from electric vehicles, renewables, data centers, and the electricity grid.
  • Spot copper is materially higher than our assumed midcycle price of about USD 3.85 per pound from 2030, based on our estimate of the long-run marginal cost of production.

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