Materials

3 brokers weigh in on BHP's March quarter: Record iron ore but nickel and copper output slumps

Mon 24 Apr 23, 2:18pm (AEST)
Yellow truck at a mine site
Source: iStock

Key Points

  • BHP's March quarter production update had mixed results, with solid iron ore production offset by softer copper and coal performance
  • BHP share are down more than 6% in the last four sessions
  • Post results, major brokers reiterated their previous ratings and price targets

BHP (ASX: BHP) posted its March quarter production update last Friday, which yielded a mixed reaction from analysts as solid iron ore production was offset by softer copper and coal division performance.

Shares in the mining giant have fallen around 6.7% in the last four sessions, largely due to a sharp pullback in iron ore prices. Benchmark Singapore iron ore futures are down almost 11% since last Thursday to US$105.8 a tonne amid subdued buying interest from steel mills and higher Chinese port inventories.

Iron ore price
Iron ore futures (Source: TradingView)

A mixed March quarter

Iron ore production was unchanged year-on-year for the nine months to 31 March 2023 at 191.7 million tonnes and in-line with analyst expectations. But that was probably the only positive takeaway as copper, nickel and metallurgical coal production all came in below expectations. In summary:

  • Copper production faced geotech issues at Escondida and lower volumes from Olympic Dam

  • Met coal production is recovering but production remains at the low end of guidance

  • Nickel guidance was downgraded due to heavy rainfall 

Brokers ratings: Macquarie, Citi and Morgan Stanley

All three brokers reiterated previous ratings and price targets. The March quarter and guidance was generally viewed as in-line with expectations. 

  • Macquarie retained an OUTPERFORM rating with a $52.00 target price

  • Citi reiterated a NEUTRAL rating with a $43.00 target price

  • Morgan Stanley retained EQUAL-WEIGHT rating with a $41.35 target price

More broadly speaking, across 26 sell-side ratings:

  • Buy 35% 

  • Hold 46% 

  • Sell 19%

  • After Friday, the average target price was unchanged at $47.28

Some key comments from the three major brokers include:

  • Macquarie: “The completion of the OZ Minerals acquisition presents the opportunity for BHP to redefine the production outlook for Olympic Dam and Nickel West, and this presents upside risk to our base case earnings forecasts and valuation for BHP.”

  • Macquarie: “The stock is trading on an FY24 free cash flow yield of 11%, rising to 13% at spot prices.” 

  • CitBHP 12i: “Copper is now 29% of our DCF with iron ore 55%; and we expect China steel production cuts to pressure iron ore prices in 2H CY23.”
  • Morgan Stanley: “We remain equal-weight and prefer Rio Tinto, with near-term risks around Samarco provisions.” 

BHP Group Ltd (ASX BHP) Share Price - Market Index
BHP 12-month price chart (Source: Market Index)

 

Written By

Kerry Sun

Content Strategist

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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