BHP leans on copper growth, not big deals

BHP (NYSE, LSE, ASX: BHP) is betting on organic copper growth over major acquisitions, with chief executive Mike Henry saying the miner already has the sector’s strongest development pipeline.
Speaking after the company’s half-year results Tuesday, Henry said he wasn’t surprised rivals were turning to mergers and acquisitions to boost copper exposure as more companies chased growth in the metal.

“In our case, we’ve got the luxury of starting from a very strong base,” Henry said. “We’re now the largest copper producer, we’ve grown by 30% and we’ve got multiple large growth options already in the portfolio, so we don’t feel the need to.”

BHP walked away in May 2024 from a proposed takeover of Anglo American (LSE: AAL). Anglo later agreed to merge with Teck Resources (TSX: TECK.B; NYSE: TECK) in a $53-billion (C$73.3 billion) deal. Rio Tinto (NYSE, LSE, ASX: RIO) and Glencore (LSE: GLEN) also abandoned merger talks Feb. 5.

Copper takes the lead

Copper displaced iron ore as BHP’s top earnings driver for the first time, with copper earnings before interest, taxes, depreciation and amortization of $8 billion, up 59%. The company aims to lift copper-equivalent production to 2.5 million tonnes a year by the 2035 financial year, from 1.9 million to 2 million tonnes this financial year.

BHP expects about 1.4 million tonnes a year from its Escondida and Pampa Norte operations in Chile and about 500,000 tonnes a year from its South Australian portfolio initially, with potential to reach 1 million tonnes.

At the Vicuña project on the Argentina-Chile border, its joint venture with Lundin Mining (TSX: LUN), the partners filed an updated technical report this week. It estimates the Josemaría and Filo deposits host about 47 million tonnes of copper, 97 million oz. gold and 1.8 billion oz. silver, positioning Vicuña to produce about 800,000 tonnes a year of copper equivalent at first-quartile cash costs.

The partners plan to spend about $800 million on the project this year and aim to reach a final investment decision on the first stage by year-end. Henry said the venture applied under Argentina’s RIGI incentive regime, the country’s large foreign investment incentives program, and that BHP wants to move quickly given the project’s advanced stage.

Deal capability

As of Dec. 31, BHP’s net debt stood at $14.7 billion, with gearing of 20.9%. The company said it sees potential to unlock up to $10 billion in value from its portfolio, including cash already set to come from the sale of a stake in Pilbara power infrastructure and signing the largest silver streaming agreement at Antamina with Wheaton Precious Metals (TSX: WPM; NYSE: WPM).

Even with that financial capacity, Henry said BHP’s strategy doesn’t depend on buying growth.

“That’s a dangerous place for a company to be, where they can only unlock growth through mergers and acquisitions,” he said.

Instead, he said, improving productivity and advancing existing projects over the next decade should deliver strong shareholder returns. While BHP has the balance sheet to do deals, Henry said there are few large, long-life, low-cost assets that meet its criteria.

“The real focus is on running our existing business even better and unlocking the organic growth that we have in the portfolio,” he said. “For the discrete few opportunities that might come along that fit the very strict criteria that we have, we’ve got the wherewithal to pursue them, but we’re not feeling any burning need to.”