BHP Earnings: Stronger Prices Drive a Sound Result, but Higher Samarco Provision Disappointing

Increased costs for the Samarco dam failure lead to a modest reduction in our fair value estimate for no-moat BHP to AUD 42 per share, down from AUD 43. BHP owns the Samarco iron ore mine in a joint venture with no-moat Vale. While the company reiterated guidance, we raise our forecast fiscal 2024 unit cash costs for its Western Australian Iron Ore operations to USD 19 per metric ton, roughly the top end of guidance. We also now forecast unit cash costs of USD 1.70 per pound at its 57.5%-owned Escondida copper mine in Chile, also at the top end of guidance. We had previously assumed unit cash costs at around the midpoint of guidance for these two businesses, but raise our assumed costs, given inflation headwinds are still prevalent.