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BHP Group: Sound first quarter results while strategic changes remain on track

Timothy Anderson

Timothy Anderson is a contributor with the Australian Stock Report and is currently in his final year of studying a Bachelor of Applied Economics and a Bachelor of International Relations and Politics at the University of Canberra. Tim has a genuine passion for economics, specifically in macroeconomic analysis including how certain macroeconomic policies and indicators affect financial markets and the economy, as well as how these factors affect personal investment strategies. Tim currently holds RG146 Tier 1 Generic Knowledge qualifications.

BHP Group Ltd (ASX: BHP) is Australia’s largest resource company that specialises in extracting minerals (mainly iron ore and copper) as well as oil and gas. BHP main operations are within Australia and the Americas. BHP has a market capitalisation of A$115 billion.



What are the key features of the first quarter result for FY22?

The first-quarter production numbers are consistent with production and unit cost guidance for the FY22 financial year. Consequently, there is no change to the outlook BHP provided to the market in July 2022. That said, production numbers for iron ore, copper, nickel and metallurgical coal were all down in the first quarter of FY22 due to scheduled maintenance being undertaken. Petroleum production was up slightly due to seasonal factors and energy coal production was higher.


What progress has been made on strategic changes BHP is making?

BHP plans to make two major strategic changes to its business operations. First, BHP intends to unify its current Dual Listed Company structure. BHP’s Plc shareholders' shares will be exchanged for BHP Limited shares on a one-for-one basis. BHP considers that unification will result in a corporate structure that is simpler and more efficient, duplication and streamlining BHP’s governance and internal processes. The unification transaction is on track to occur in the March 2022 quarter.

Second, BHP and Woodside Petroleum Ltd (ASX: WPL) plan to combine their respective oil and gas portfolios. On completion, Woodside will be owned by approximately 52% and 48% of existing Woodside and BHP shareholders respectively. This transaction is on track to take from 1 July 2022.


What is the outlook for BHP?

The key driver of FY22 earnings will be movements in commodity prices, particularly the iron ore price. In recent months, the iron ore price has weakened to around $US120 per tonne compared to a peak of around $US220 per tonne in May 2021. While the price of iron ore has weakened, in the short term, iron ore prices are expected to remain strong reflecting flat production profiles of the major producers. In the long term, it can be expected that the iron ore price will weaken towards a long term average of say US$50 per tonne because at some point there will be a supply response.


What is the market reaction to the Q1 result?

BHP’s first-quarter result is in line with market expectations. BHP’s share price is around $38.40. The BHP is trading on a forward P/E ratio of around 8 times and a dividend yield of around 8%.

This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).
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