Executive Summary / Key Takeaways

• BHP is strategically repositioning its portfolio towards "future-facing commodities" like copper and potash, leveraging its world-class asset base and operational excellence to capitalize on global megatrends such as decarbonization and urbanization.
• The company delivered strong financial results in FY2025, with a 21.36% increase in Copper revenue and a record 263 Mt in Iron Ore production, demonstrating robust performance despite commodity price volatility.
• Significant capital is being allocated to growth projects, with an expected spend of around $10 billion in FY2025 and an average of $11 billion annually in the medium term, two-thirds of which is directed towards future-facing assets like the Jansen Potash Project and Copper South Australia.
• BHP maintains a strong competitive position as a low-cost producer in key segments, notably iron ore, and is actively developing technological differentiators, including advanced leaching technologies for copper, to enhance efficiency and sustainability.
• While facing risks from commodity price fluctuations, geopolitical factors, and the Samarco dam failure, BHP's disciplined capital allocation, strong balance sheet, and focus on social value underpin its resilience and long-term value creation potential.

A Foundation of Resilience and Strategic Evolution

BHP Group Limited, incorporated in Australia in 1885, has evolved from its origins in Australian mining to become a global resources powerhouse. Its history is marked by strategic expansions, such as the development of the Pilbara iron ore operations in the 1960s and 1990s, and significant portfolio adjustments, including the demerger of South32 (SOUHY) in FY2015. A pivotal moment in its recent history was the unification of its Dual Listed Company structure in January 2022, streamlining operations and enhancing agility. This foundational journey has shaped BHP's current strategy: a focused portfolio of large, long-life, low-cost assets in commodities poised to benefit from global megatrends like population growth, urbanization, rising living standards, and the energy transition.

The company's overarching strategy emphasizes operational excellence to maximize value, deliver high operating margins, and generate consistent returns. This is evident in its continuous improvement culture, supported by the BHP Operating System (BOS), which fosters best practices across its value chain. BHP's competitive standing is robust, consistently outperforming rivals in operational efficiency. For instance, its EBITDA margin has averaged 55% over the last decade, more than 10 percentage points higher than its closest major competitor. This leadership is further underscored by its position as the world's lowest-cost iron ore producer for over four years, with C1 costs of just $15.84 per ton in FY2024, extending a significant cash margin advantage of at least $8 per ton over its Pilbara competitors.

Technological Edge and Innovation Driving Future Growth

BHP's strategic vision is deeply intertwined with technological differentiation and innovation, particularly in its future-facing commodities. The company is actively investing in and developing advanced technologies to enhance extraction, processing, and sustainability across its operations.

A prime example is the exploration of five distinct leaching technologies at its Escondida copper mine. These technologies are designed to extract more copper while offering significant benefits over traditional methods. Potential advantages include lower water and energy consumption, the elimination of tailings dams, and the direct production of a cathode finished product, bypassing the need for smelting. These innovations, currently under study or in execution through pilots, demonstrate varying propositions in terms of cycle time, cost, and production impact. The strategic intent is to identify technically and economically viable solutions to sustain and grow copper production, particularly as Escondida faces expected grade decline after 2026.

In its broader operational decarbonization efforts, BHP is supporting the development of new equipment by original equipment manufacturers (OEMs), including trialling electric locomotives and haul trucks. While the pace of diesel displacement technologies has seen some delays, the company's operational plans assume progressive replacement of diesel-powered equipment at the end of their useful lives with available low-emission technologies. This commitment to technological advancement not only aims to reduce operational greenhouse gas (GHG) emissions but also to enhance long-term cost efficiency and secure its "social license to operate" in an increasingly environmentally conscious world.

For investors, these technological initiatives are critical. They contribute to BHP's competitive moat by potentially lowering operating costs, improving resource recovery, and reducing environmental impact, thereby enhancing financial performance and market positioning. The ability to process lower-grade ores more efficiently or to produce finished products without energy-intensive smelting could translate into higher margins and a more sustainable production profile, differentiating BHP from competitors reliant on conventional, higher-emission processes.

Financial Performance and Strategic Capital Allocation

BHP delivered a strong financial performance in FY2025, building on a track record of operational resilience. Total revenue for FY2025 was $51.26 billion, with an underlying attributable profit of $9.02 billion. The company's underlying EBITDA reached $25.98 billion, reflecting a healthy margin of 59% in Copper and 63% in Iron Ore. This robust profitability translated into a return on capital employed (ROCE) of 20.60% for FY2025.

Cash flow generation remains a hallmark of BHP's financial strength. In FY2024, the company generated over $20 billion in net operating cash flow, enabling $9.3 billion in business investments and reducing net debt to $9.1 billion. This consistent ability to generate substantial cash flows, exceeding $15 billion in all but one of the past 15 years, underpins its disciplined Capital Allocation Framework (CAF).

Looking ahead, BHP plans to increase capital and exploration expenditure to unlock productivity, decarbonize assets, and deliver growth in future-facing commodities. The company expects to spend around $10 billion in FY2025, with a majority directed towards growth and improvement projects. In the medium term, average annual spending is projected to be around $11 billion, with approximately two-thirds allocated to copper and potash. This strategic allocation reflects BHP's confidence in the long-term fundamentals of these commodities.

Growth Pathways and Market Outlook

BHP's growth narrative is compelling, particularly in copper and potash. The global demand for copper is projected to grow by approximately 70% between 2021 and 2050, driven by urbanization, industrialization, and the immense infrastructure requirements of the energy transition, including electric vehicles, renewables, and data centers. BHP, with the world's largest copper resource, is well-positioned to meet this demand.

In South Australia, the integration of OZ Minerals assets with Olympic Dam is creating a new copper province. The Smelter and Refinery Expansion (SRE) project at Olympic Dam is expected to unlock around $1.5 billion in synergy value from the OZ Minerals acquisition, with $600 million already captured. This project, with a final investment decision expected in the first half of FY2027, aims to grow copper production from 310-340 ktpa today to over 500 ktpa by the early 2030s. Further upside is anticipated from Oak Dam, an exploration target indicating 0.5 billion to 1.7 billion tonnes of mineralization at 0.8% to 1.1% copper grade. In Chile, projects at Escondida have the potential to add an incremental 200 ktpa of copper production with attractive returns ranging from 14% to 19%.

The Jansen Potash Project in Canada is another cornerstone of BHP's future growth. Global potash demand is also expected to grow by around 70% by 2050, driven by population growth, rising living standards, and the need for increased agricultural productivity. Jansen Stage 1 is 68% complete, with first production potentially reverting to mid-CY2027, and Stage 2 is 11% complete, with first production shifted to FY2031. BHP anticipates Jansen will enter the market at the low end of the global cost curve, generating strong EBITDA margins.

While the iron ore market is expected to face increasing competition, BHP's WAIO operations continue to be a significant earnings driver. Studies for further growth to 330 Mtpa are due to be completed in 2025, providing optionality for expansion should market conditions warrant.

Risks and Competitive Dynamics

BHP operates in a complex global environment, facing several pertinent risks. Commodity price volatility remains a primary concern, directly impacting revenue and profitability. The temporary suspension of Western Australia Nickel operations in FY2025, due to significant global oversupply and high costs, exemplifies this risk. Geopolitical factors, including industrial relations and tax policies in operating jurisdictions, also pose challenges. Mike Henry has expressed concerns that recent policy enactments in Australia, particularly related to industrial relations and tax, are "creating drag" in terms of underlying competitiveness, contrasting with more collaborative approaches seen in other regions like Chile.

Cybersecurity threats are an increasing risk due to growing reliance on information systems and third-party partners. BHP addresses this through a dedicated cybersecurity team, 24/7 monitoring, and robust governance overseen by the Board's Risk and Audit Committee. The Samarco dam failure continues to represent a significant legal and financial liability, with a provision of $5,849 million as of June 30, 2025, and ongoing uncertainties regarding future costs and funding.

Despite these risks, BHP's competitive advantages are substantial. Its scale and diversified commodity portfolio provide operational resilience and risk mitigation, allowing it to adapt to supply chain disruptions and maintain profitability where others may struggle. The company's leadership in cost efficiency, particularly in iron ore, and its commitment to social value, including achieving gender balance in its workforce and increasing Indigenous procurement, further strengthen its market position and long-term sustainability.

Conclusion

BHP stands as a resilient giant in the global resources sector, strategically pivoting towards future-facing commodities while reinforcing its core strengths in operational excellence and cost leadership. The company's deliberate investments in copper and potash, underpinned by technological innovation and a disciplined capital allocation framework, position it favorably to capitalize on the immense demand driven by global decarbonization and population growth. While challenges such as commodity price volatility, regulatory shifts, and legacy liabilities persist, BHP's robust financial health, proven operational capabilities, and commitment to social value provide a compelling investment thesis for long-term value creation. The ongoing development of its copper and potash assets, coupled with its ability to outperform competitors in efficiency and returns, suggests a strong trajectory for sustained success in the decades to come.