Davis Index: Market Intelligence for the Global Metals and Recycled Materials Markets

BHP plans to focus on its steel and base metals resources through the rest of FY2022 and is restructuring its business and revising its outlays accordingly.


In FY2022, BHP plans capital expenditures of $3.2bn for maintenance, $3.2bn for improvements, $1.7bn in growth projects, $800mn in exploration, and $100mn to expand capacity. From this budget, $100mn is slated towards copper exploration and $2.1bn in iron ore capital and exploration expenditures. 


BHP is also restructuring its operations and leaving the petroleum sector by merging its $15bn oil-related assets with Australia’s Woodside Petroleum. BHP stockholders will retain 48pc of the new company with the merger expected to be completed by H1 2022. 


The company also continues efforts to divest its thermal coal business while planning to make a $5.7bn investment in Canada toward growth in the potash fertilizer market. The Canadian Jansen S1 asset is a large, low-cost one, compared to its peers in Asia, Canada, CIS, EU, Middle East, and South America. The potassium mine is estimated to begin production in 2027 with an annual forecast of 4.35mn mt. 


BHP continues its operational guidance for FY2022. The company expects inflation and exchange rates to remain volatile during the fiscal with the unit cost for iron ore forecast at $17.5-18.5/mt from $14.82/mt in FY2021 primarily at Western Australia Iron Ore against an average realized price of $130.56/WMT fob. Iron ore prices could begin to soften in the latter half of the year.


The mining conglomerate increased its EBITDA by 64pc to $37.4bn in FY2021 against the prior year as the underlying attributable profit rose by 88pc to $17.1bn in the same timeframe. 


In FY2021, it invested $4.8bn in organic growth through a capital expenditure of $2.7bn towards improvements, $1.4bn in major projects, $500mn in exploration, and $200mn in undeveloped capacity. The company is increasing exposure to future-facing commodities such as copper and nickel. The Spence growth project in copper and the South Flank iron ore projects were finished in 2021.


EBITDA from iron ore rose by 77pc to $26.3bn in FY2021 while EBITDA from copper grew by 62pc to $8.5bn, petroleum EBITDA increased by 58pc to $2.3bn, and EBITDA from metallurgical coal fell by 14pc to $593mn. 


Brazil’s Samarco resumed limited operation in December 2020, successfully filed for the judicial organization in April 2021, and is finalizing its debt restructuring. Once the plan is cleared, Samarco can rebuild its operations safely allowing BHP to integrate those iron ore volumes in future years. The company sustained a $1.2bn impact in FY2021 due to the Samarco dam failure.

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