Company Reports

In response to no-moat BHP’s overtures, no-moat Anglo American proposes restructuring to focus on its copper and iron ore operations while selling or spinning off its other businesses, including platinum group metals, De Beers, or diamonds, and metallurgical coal. It would also keep the Woodsmith polyhalite project in the United Kingdom. Along with selling its coal business, another major difference to BHP’s proposal is that Anglo will retain its 69.7% stake in Kumba Iron Ore in South Africa. The restructure would essentially cut Anglo’s business in half, with copper and iron ore operations currently accounting for around half of our forecast EBITDA midcycle from 2028.

No-moat BHP has lobbed an increased proposal to buy no-moat Anglo American in an all-share transaction via a scheme of arrangement. Under the updated proposal, Anglo American shareholders would receive 0.8132 BHP shares for each Anglo American share they hold, 15% higher than they would have received under the original proposal that Anglo rejected. (See our note 'BHP Lobs All-Share Proposal for Anglo American; Shareholders Take No Action.') However, Anglo also rejected BHP’s updated proposal. All other conditions of the proposal remain the same, including being conditional on Anglo American first demerging and distributing its 78.6% shareholding in Anglo American Platinum, its platinum group metals business, and 69.7% shareholding in Kumba Iron Ore to its shareholders.

BHP is the world’s largest miner by market capitalization. Its main operations span iron ore and copper, with smaller contributions from metallurgical coal, thermal coal, and nickel. The company is also developing its Jansen potash project in Canada. BHP merged its oil and gas assets with Woodside Energy in June 2022, vesting the Woodside shares it received to BHP shareholders, and exiting the sector. It purchased copper miner Oz Minerals in fiscal 2023.

No-moat BHP proposes to buy no-moat Anglo American in an all-share transaction via a scheme of arrangement. Under the proposal, Anglo American shareholders would receive 0.7097 BHP shares for each Anglo American share they hold. The proposal is conditional on Anglo American first demerging and distributing its 78.6% shareholding in Anglo American Platinum, its platinum group metals, or PGMs, business, and 69.7% shareholding in Kumba Iron Ore to its shareholders. It is also subject to due diligence and other conditions. The proposal is roughly equal to our base-case fair value estimate for Anglo of GBX 2,080 per share and Anglo is reviewing the proposal.

We retain our AUD 40.50 fair value estimate for no-moat BHP with fiscal 2024 third-quarter sales broadly in line with our expectations. Fiscal 2024 production guidance remains within previously announced ranges, except for metallurgical coal, which is again reduced, meaning unit cash costs are likely to be higher than previously guided. However, the changes are immaterial to near-term earnings, and we forecast fiscal 2024 EBITDA of about USD 29.5 billion. Our longer-term forecasts also remain largely intact.

Commodity prices diverged in the quarter. Despite solid China steel production, iron ore and metallurgical coal prices are down, while copper rose on supply issues and hopes of faster global growth. However, prices are elevated compared with history and cost-curve support.

Iron ore prices are lower on concerns over China steel demand due to its struggling property market and weak infrastructure spending. However, gold prices are up on optimism over peak interest rates, driving a 2% rise in our estimate for no-moat Newmont, to USD 51. It remains the cheapest miner we cover, trading 27% below fair value.

BHP is the world’s largest miner by market capitalization. Its main operations span iron ore and copper, with smaller contributions from metallurgical coal, thermal coal, and nickel. The company is also developing its Jansen potash project in Canada. BHP merged its oil and gas assets with Woodside Energy in June 2022, vesting the Woodside shares it received to BHP shareholders, and exiting the sector. It purchased copper miner Oz Minerals in fiscal 2023.

Demand growth from China has been the main driver of rising commodity prices in the past two decades. More recently, though, most commodity prices have fallen from highs set with Russia’s invasion of Ukraine, the subsequent sanctions on Russia, and the rerouting of supply chains. Prices, nevertheless, are generally elevated versus the 20-year average, as well as relative to cost support.

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.

BHP is the world’s largest miner by market capitalization. Its main operations span iron ore and copper, with smaller contributions from metallurgical coal, thermal coal, and nickel. The company is also developing its Jansen potash project in Canada. BHP merged its oil and gas assets with Woodside Energy in June 2022, vesting the Woodside shares it received to BHP shareholders, and exiting the sector. It purchased copper miner Oz Minerals in fiscal 2023.

No-moat BHP’s fiscal 2024 second-quarter sales were in line with our expectations. The company also reiterated fiscal 2024 guidance, except metallurgical coal. Fiscal 2024 production will likely be lower and unit cash costs higher than originally guided. We lower our fiscal 2024 EBITDA forecast by 3% to USD 32.7 billion. But our longer-term forecasts remain largely intact, and the near-term decrease is immaterial to our unchanged AUD 43 per share fair value estimate.

Near-term iron ore prices are higher on strong China steel production. Gold prices are up on optimism over peak interest rates, driving a 2% rise in our estimate for no-moat Newmont, to USD 54. It is the cheapest we cover, trading 30% below fair value.

BHP is the world’s largest miner by market capitalization. Its main operations span iron ore and copper, with smaller contributions from metallurgical coal, thermal coal, and nickel. The company is also developing its Jansen potash project in Canada. BHP merged its oil and gas assets with Woodside Energy in June 2022, vesting the Woodside shares it received to BHP shareholders, and exiting the sector. It purchased copper miner Oz Minerals in fiscal 2023.

Commodity prices diverged in the quarter with strong China steel production driving iron ore and metallurgical coal prices up, while base metals prices dropped on worries of a Western recession. Even so, prices are elevated versus history and cost-curve support.

BHP is the world’s largest miner by market capitalization. Its main operations span iron ore and copper, with smaller contributions from metallurgical coal, thermal coal, and nickel. The company is also developing its Jansen potash project in Canada. BHP merged its oil and gas assets with Woodside Energy in June 2022, vesting the Woodside shares it received to BHP shareholders, and exiting the sector. It purchased copper miner Oz Minerals in fiscal 2023.

We maintain our fair value estimate for no-moat BHP of AUD 41 per share as fiscal 2024 first-quarter sales met our expectations. BHP also reiterates fiscal 2024 guidance. BHP’s share of sales from its Western Australia iron ore operations, the main driver of its earnings, was 64 million metric tons, up modestly on the previous quarter and the same period last year. BHP’s WAIO business is on track to meet our unchanged forecast for fiscal 2024 of roughly 255 million metric tons, its share, around 3% higher than last year. An average price of USD 98 per metric ton was modestly lower than our forecast for fiscal 2024 of about USD 102, but futures prices are higher. We continue to forecast WAIO unit cash costs of around USD 18 to USD 19 per metric ton for fiscal 2024. BHP’s iron ore business accounts for about 60% of our forecast fiscal 2024 EBITDA of roughly USD 30 billion.

Strong China steel production is supporting prices for steel inputs despite recession concerns. Otherwise, changes to our commodity price assumptions are mixed, led by higher near-term iron ore prices and lower near-term thermal coal prices. We think thermal coal miner Whitehaven Coal and minerals sands miner Iluka are the cheapest we cover. Both trade at 29% discounts to our AUD 9.50 and AUD 10.50 per share fair value estimates, respectively, with Whitehaven’s down 3% on lower near-term thermal coal prices, partially offset by a weaker Australian dollar. Peer New Hope is also down 3% to AUD 6.10 per share. Iluka’s estimate is unchanged, with a weaker Australian dollar offsetting lower synthetic rutile prices.

BHP is the world’s largest miner by market capitalization. Main operations span iron ore, copper, and metallurgical coal. Minor contributions are from thermal coal and nickel, while the company is developing its Jansen potash project in Canada. BHP merged its oil and gas assets with Woodside Energy in June 2022, vesting the Woodside shares it received to BHP shareholders, and exiting the sector. It purchased copper miner Oz Minerals in fiscal 2023.

Commodity prices have generally stabilized after falling on concerns that China’s reopening would underwhelm, along with worries over a recession in the West. Even so, they remain elevated versus history and cost-curve support. The Russian invasion of Ukraine and subsequent sanctions on Russia support energy prices and reinforce the importance of energy security.