BHP Group (ASX:BHP) firing on all cylinders amid booming copper demand 

Source:Lucian Coman, Shutterstock

Summary

  • Copper, amidst solid demand, crossed its 9-year high price on the London Metal Exchange (LME) and reached US$9,147 per tonne in Q1.
  • With 1.7 million tonnes of copper production in 2020, BHP stands among the top producers of the red metal.
  • BHP estimates the demand for copper in the EV segment to rise by 1.7 million tonnes by 2027.

Copper, the bellwether metal, crossed its 9-year high price and breached the US$9,000/tonne mark on the LME in the first quarter of 2021. The robust demand for the metal has pulled its price from a low of US$4,617/tonne to the current level within a short span.

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Commodity supercycle is at play for copper, and copper miners are reaping benefits from the price rally in this commodity. One such player is BHP Group (ASX:BHP, NYSE:BHP), which is engaged in developing and mining one of the largest copper mines in the world - Escondida in Chile.

BHP is the operator of many copper mines in Australia and Chile. Producing ones include Escondida (Chile), Pampa Norte (Chile), Olympic Dam (Australia) and Antamina (Peru).

Good Read: Where will BHP Group’s share price go from here?

In 2020 alone, BHP produced around 1.7 Mt of copper. The major contribution towards copper production came from the giant Escondida mine, which produced nearly 572.2 kt during 1H of FY21 ended 31 December 2021.

Based on the BHP estimates, the demand for copper in the electric vehicles (EV) segment is anticipated to increase by 1.7 million tonnes by 2027. The demand figure is almost the same as the entire Group’s production level in the first half.

BHP has set copper production guidance of 1,510-1,645 kt for FY21.

The bolstered interest in renewable energy, whether it’s wind or solar farm, is expected to boost the demand for copper. This seems the reason why BHP is putting great efforts and expenditure on finding new reserves and increasing the Life of Mine (LOM) of existing mines.

The latest addition is Oak Dam, located 65km from the producing Olympic Dam. BHP has focused its exploration activities on copper targets in Chile, Ecuador, Mexico, Peru, Canada, United States and Australia. Out of all these targets, Oak Dam is set for the next stage of resource definition drilling this year.

The Spence Growth Option project in Chile came online during the December 2020 quarter. The first molybdenum production is expected around the mid of 2021.

BHP is working in a joint venture with Rio Tinto (ASX:RIO) on the Resolution Copper Mining (RCM) Project in the US. Rio Tinto, the operator of the JV with a 55% interest, has published the Final Environmental Impact Study (FEIS) for the project. The RCM project has been in the news lately due to strong opposition from the aboriginal population living in close proximity of the project.

Dividend Payouts

On the back of robust increase in the prices of copper, iron and coal, BHP Group announced a dividend of A$1.311 per share for the 1H FY21 period. The dividend payout is the highest in recent times, with an annual yield of 4.42% (as of 12 April 2021).

As per the company reports, this is the highest paid dividend in in the last five payouts. The high dividend payout shows the Company’s commitment towards shareholders’ value creation.

Copyright © 2021 Kalkine Media Pty Ltd. Data Source: ASX website

Read here: Australian iron ore exports to hit record levels in 2020-21: Govt report

 BHP was trading at A$46.590 on 12 April 2021 (AEST 11:14 AM).


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