In today’s market, miners looking to stand out need exposure to copper, the critical commodity expected to soar in value as the energy transition wraps the globe in electrical infrastructure. BHP (ASX:BHP) is no exception. After its unsuccessful bid to acquire Anglo American’s copper assets, BHP has been keen to highlight its potential for organic growth in this sector. However, its strategy is far from foolproof.
BHP’s first challenge is that it’s still in the midst of a strategic shift. The company has made strides in refocusing its portfolio to benefit from, rather than suffer under, the energy transition by divesting oil and coal assets. Yet, in the year ending June 2024, copper contributed to less than 30% of its underlying EBITDA, while nearly 65% came from iron ore.
The outlook for iron ore is not particularly promising. Supply from major producersa is increasing, and China’s property sector struggles are dampening demand. While BHP is relatively well-positioned to weather a downturn—sitting at the low end of the cost curve with hopes that higher-cost producers may be squeezed out—it will still feel the pain. Each dollar drop in the iron ore price costs BHP $233 million in EBITDA, a factor that heavily influences investor sentiment.
BHP’s second challenge is that, while it has assembled a respectable pipeline of copper projects—both organic and acquired through smaller deals—these are still far from delivering significant production growth. BHP has made some progress, increasing copper production by an industry-leading 300,000 tonnes over the past two years. However, according to Barclays, BHP’s copper production in 2030 is projected to be roughly the same as today’s 1.9 million tonnes, with meaningful increases only arriving after that date. This backloaded growth explains why BHP was keen on acquiring Anglo’s assets in the first place and fuels ongoing M&A speculation.
The difficulty lies in acquiring copper assets at a reasonable price in a market dominated by bullish sentiment on copper. The strong performance of Chilean copper miner Antofagasta—whose shares have risen nearly 30% over the past year compared to diversified giants like BHP and Rio Tinto—highlights the widening value gap. Without viable acquisition opportunities, the next phase of BHP’s transformation will likely be a slow and challenging process.