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One of the world’s largest mining firms, BHP Group Ltd is headquartered in Melbourne, Australia, but operates in over 90 regions across the globe. Founded in 1885, BHP was earlier known as Broken Hill Proprietary Company Limited but has since developed into a diversified mining company with a large range of assets.
The BHP Group Ltd we know was formed by the merger of BHP and Billiton and was called BHP Billiton until 2018. The company employs over 80,000 people across the world.
Some of the key operations of BHP Group include the exploration, production, and marketing of minerals, metals, and energy products. These minerals include iron ore, coal, copper, nickel, uranium, and petroleum, among others. BHP is one of the largest taxpayers in Australia and has paid over $90 bn over the past decade in taxes, royalties, and other payments to the government. The company estimates that of the total corporate tax collected by the Australian government in 2022, 10% will be paid by BHP.
Business model of BHP Group Ltd
Being a mining firm BHP Group Ltd is subject to a lot of scrutiny for sustainable business practices. The company states that it exercises three key values – operational excellence, capital discipline, and portfolio optimization – through which BHP maximizes value for its shareholders while maintaining sustainability.
The company has been investing in new technology and infrastructure to improve efficiency and reduce costs across its mining operations. Talking about capital, BHP says it focuses on investment decisions based on the return potential of a project. Lastly, portfolio optimization entails continuous evaluation and improvement of the company’s assets in line with market trends.
For a mining firm, commodity assets and operations are key for turning out a profit. BHP runs an asset-intensive business and productivity improvement is a key driver. The company has several of its own projects and joint ventures with other firms. Some of the unique advantages the company has are large-scale production which reduces costs, diversified operations across various commodities which provide a hedge against market fluctuation, and operations spread across the globe to reduce supply chain costs.
Technology development is at the core of BHP strategy as it strives to achieve sustainability, and it is one of the leading mining firms which is driving innovation. The company’s operating model has helped it achieve higher performance and it is also developing expertise in supply chains with assets such as rail lines. BHP Group Ltd employs an integrated management system which allows it to measure, track and benchmark performance. It also collaborates with customers to optimize its supply chains, whereas internally, teams are incentivized to achieve higher returns with less capital.
Remote monitoring and operations of large mines are one of the major achievements of BHP Group. The BHP Innovation Centre focuses on capturing, creating, monitoring, and understanding large troves of data. Some of the other technological applications are the use of acoustic equipment which allows the company with real-time monitoring of its assets, which improves the decision-making process.
Specifically, on the sustainability front, the company has a set of guidelines which it calls “Our Charter” which is governed by another internal standard. The company has pledged to achieve the following targets through its initiatives — decarbonisation, a healthy environment, indigenous partnerships, a safe, inclusive and future-ready workforce, community empowerment and responsible supply chains. More specifically, BHP Group is working on reducing emissions by at least 30% by 2030 compared to 2020 and aims to go net-zero by 2050.
Performance of BHP Group Ltd
For the full year ended June 30, 2022, the company reported a net profit of $30.9 bn, a 173% jump over the previous year, while posting a record cash flow of $24.3 bn.
Meanwhile, for the six months that ended December 31, 2022, the company posted a 16% rise in revenue from operations of $25.7 bn, with the net profit jumping 32% to $6.5 bn.
“We are positive about the demand outlook in the second half of FY23 and into FY24, with strengthening activity in China on the back of recent policy decisions as the major driver. We expect domestic demand in China and India to provide stabilising counterweights to the ongoing slowdown in global trade and in the economies of the US, Japan and Europe,” said Mike Henry, Chief Executive Officer after the company posted its half-year results on February 21. “The long-term outlook for our commodities remains strong given population growth, rising living standards and the metals intensity of the energy transition, including for steel-making raw materials.”
Stock movement
Primarily listed on the Australian Securities Exchange in Sydney, BHP Group Ltd has gained over 12% in the past year, as of February 22. The company has a total market capitalization of A$238.84 bn ($163.12 bn).
BHP’s stock is currently trading at a price-to-earnings ratio of 5.38, whereas the forward PE is estimated at 8.17. The company has a price-to-book ratio of 3.75.
BHP also has a standard listing on the London Stock Exchange (LSE), a secondary listing on the Johannesburg Stock Exchange (JSE) and has issued American Depository Shares in the US.
Future plans of BHP Group Ltd?
BHP Group Ltd is focused on investing in growth opportunities that create long-term value. The company has identified several key growth areas, including renewable energy, electric vehicles, and decarbonization.
In recent years, BHP has made significant investments in renewable energy and technology. The company has committed to investing $400m over five years in developing low-emissions technologies, including carbon capture and storage, hydrogen, and electrification. BHP has also entered into several agreements to supply renewable energy to its operations, including a wind power purchase agreement with Queensland’s largest wind farm.
On the mining front, the Jansen project in Canada is a key mine which is currently under construction, whereas the Western Australia Iron Ore project is undergoing an expansion for higher productivity.
“BHP Group is aligned to benefit from supportive iron ore and chrome prices. Although coal prices are retracing, BHP’s coal operations are set to ramp up after weather delays, which could phase out commodity price risk,” as per Pearl Gray Equity and Research, which publishes on Smartkarma. “In addition, the company has illustrated operational brilliance by efficiently using its working capital and posting exhilarating profit margins. Even though the stock exhibits book value concerns, its earnings growth rate is sublime, and its dividend profile is solid.”
