BHP Group Ltd. (BHP) Report Interpretation

Overview

This earnings review assesses BHP’s FY26 result, updated operating guidance and copper-growth projects. Goldman Sachs views the result as strong, maintains Buy, and lifts its target price to A$65.20 on lower cost assumptions and a modestly higher NAV.

Core views

BHP reported FY26 underlying EBITDA of about US$33bn, above Goldman Sachs’ and company-compiled consensus estimate of about US$32.3bn. The main driver was copper: divisional EBITDA of about US$18.2bn exceeded Goldman Sachs’ US$17.5bn estimate, aided by a US$220mn copper-cost beat. Iron ore and coal were broadly in line, while Pilbara unit costs were slightly better at about US$20/t in the June half. Underlying earnings of US$13.2bn and EPS of 260 US cents were each 4% above Goldman Sachs and consensus, while the US$0.99 final dividend exceeded Goldman Sachs’ US$0.83 estimate and implied a 72% payout. Cash generation and balance-sheet outcomes support the report’s near-term thesis. Net debt was US$8.7bn, slightly below guidance of about US$9bn and below the lower half of BHP’s US$10-20bn target range. The company received US$4.3bn from the Antamina silver-streaming transaction and about US$0.7bn in further asset-sale proceeds; the US$2bn Pilbara power sale to Global Infrastructure Partners had also completed. Goldman Sachs expects BHP to maintain a dividend payout above 60% through the FY27 production dip, while funding its growth pipeline through cash flow and infrastructure capital recycling. Its medium-term FCF yield estimate is about 3% at planned capex of about US$11bn, rising to 5% at spot commodity prices and FX. Guidance was broadly positive relative to Goldman Sachs’ estimates. FY27 Pilbara unit-cost guidance of US$20-22/t is in line with the firm’s US$21/t assumption, while Escondida guidance of US$1.2-1.5/lb is better than its US$1.6/lb estimate. Medium-term Escondida unit-cost guidance was reduced by about US$0.20/lb to US$1.3-1.6/lb, prompting Goldman Sachs to lower its own prior US$1.7/lb model assumption to US$1.5/lb. BHP says it has achieved about US$5bn of cumulative productivity savings since FY20 against a cost base of about US$26bn, which Goldman Sachs links to sector-leading absolute and unit-cost performance. Medium-term capex guidance rose by US$1bn to about US$11bn, in line with Goldman Sachs’ US$11-11.5bn estimate. The increase reflects cumulative US$1.5bn of inflation and FX effects and the inclusion of Jansen Stage 2. The Escondida New Concentrator budget rose 10-15% and its capacity increased about 10%; BHP confirmed a roughly 140ktpd plant costing US$5.4-6.3bn. Assuming about one year for permitting, a possible FID in the first half of 2027 and three years of construction, Goldman Sachs sees ramp-up beginning in mid-2030 and bringing forward about 50-100ktpa of copper production by roughly two years. The report’s longer-term upside case is BHP’s approximately US$50bn copper pipeline. BHP targets 3-4% copper-equivalent production CAGR in FY27-FY35, compared with Goldman Sachs’ roughly 2% estimate; the difference chiefly reflects the assumed scale and timing of Olympic Dam expansion and commodity assumptions. For South Australia, BHP outlined a roughly US$15bn two-phase copper programme: Phase 1 would lift production from 330ktpa to 500ktpa by 2035 and Phase 2 to about 650ktpa by 2040. The Phase 1 underground-development budget increased to US$5.8-7.5bn from about US$5.4-6.9bn. Goldman Sachs models about 400ktpa by 2033 and about US$12bn of real-dollar capex, but does not include the Olympic Dam block cave in its base case pending more evidence. It also notes Vicuna Phase 1 is on track for FID in the second half of 2026 and first production in 2031, while increasing its Phase 1 capex estimate to about US$8.5bn. Goldman Sachs raises FY27/FY28/FY29 EBITDA forecasts by 4%/3%/3%, primarily from lower unit-cost assumptions at Escondida, Spence, Olympic Dam and Pilbara and slightly lower copper smelter treatment and refining costs. NAV rises 2% to about A$67.3 per share, and the 12-month target rises 3% from A$63.50 to A$65.20. The target uses an equal 50:50 blend of NAV and EV/EBITDA, with an unchanged 7.5x target multiple. The report regards BHP as fairly valued at about 0.95x NAV and 7.6x next-twelve-month EBITDA, but argues that superior margins and operating performance support a premium to global mining peers.

Analysis framework

Goldman Sachs first compares FY26 earnings, cash flow and divisional performance with its estimates and consensus. It then assesses production, costs, capex and individual growth projects, updates earnings and NAV assumptions, and values BHP using an equal blend of sum-of-the-parts NAV and an EV/EBITDA multiple.

Methodology notes

• Valuation methodsSOTP (Sum-of-the-Parts) Valuation

  Divisional net asset value valuation

  The report values BHP’s copper, iron ore, coal, potash and nickel businesses separately, adjusts for corporate items and net debt, and derives NAV of about A$67.3 per share.

• Valuation methodsEV/EBITDA valuation

  Forward EV/EBITDA valuation

  Goldman Sachs applies a 7.5x target multiple to next-twelve-month EBITDA and blends this result equally with NAV to set the target price.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• BHP Group Ltd. (BHP.AX)

  Primary covered company; copper performance, cost guidance and project optionality underpin Goldman Sachs’ Buy rating.

  Strengths

  Copper EBITDA beat, low net debt, productivity savings, strong operating margins and a self-funded growth pipeline.

  Weaknesses

  Expected FY27 production dip from lower Escondida grades; valuation is described as fairly valued.

  Comparison

  Trades at about 0.95x NAV and 7.6x NTM EBITDA; above its 25-year 6.5-7x historical EV/EBITDA average but below pure-play base-metals companies and global copper peers.

  Risks

  Commodity prices and FX, costs and capex, project execution, fiscal risks, M&A and Samarco rehabilitation charges.

Key data

• FY26 underlying EBITDAUS$32.947bnAbout 2% above Goldman Sachs and company-compiled consensus estimates.
• FY26 copper EBITDAUS$18.187bnAbout 4% above Goldman Sachs’ US$17.510bn estimate.
• Net debtUS$8.7bnSlightly better than guidance of about US$9bn.
• Final dividendUS$0.99 per shareAbove Goldman Sachs’ US$0.83 estimate; 72% payout.
• FY27/FY28/FY29 EBITDA revisions+4% / +3% / +3%Driven mainly by lower modeled operating costs.
• NAVA$67.3 per shareUp 2% following revised assumptions.
• 12-month target priceA$65.20 per shareUp 3% from A$63.50.
• Copper-equivalent production growth target3-4% CAGR in FY27-FY35BHP target versus Goldman Sachs’ roughly 2% estimate.

Impact & implications

The report argues that a copper-led earnings beat, lower cost outlook and balance-sheet flexibility reinforce BHP’s ability to sustain shareholder distributions while investing in growth. The largest longer-term value opportunity is the copper-project pipeline, although Goldman Sachs’ base case remains more conservative than BHP’s growth ambition, particularly for Olympic Dam.

Risks

• Macro risks including AUD, CLP and CAD exchange rates and commodity prices over the next 12 months.
• Operating-cost and capital-expenditure volatility.
• Project-execution timing risk.
• Fiscal risk and external M&A risk.
• Ongoing or higher Samarco rehabilitation charges in Brazil.
• Jansen Stage 2 faces underground-operating risk and uncertain impact on the potash market.

What to watch

• Escondida New Concentrator permitting, potential first-half 2027 FID, construction progress and possible mid-2030 ramp-up.
• Further information on the Olympic Dam block-cave concept and BHP’s planned South Australia copper investor visit in late November 2026.
• Vicuna Phase 1 FID expected in the second half of 2026 and progress toward first production in 2031.
• Resolution Copper drilling progress following the land exchange.
• Jansen Stage 2 execution, budget delivery and the performance of Stage 1.