In the year to date, BHP shares have risen by 18% whilst the ASX 200 has actually fallen by 6%.
After outperformance of more than 20% in the first couple of months in 2022, what’s next for the resources giant?
Plans for growth
BHP is one of the largest businesses in the world with a market capitalisation of $253 billion according to the ASX.
However, the company’s management is now looking at growth options for the business.
The last decade has included some significant divestments by BHP. For example, it divested South32 Ltd (ASX: S32) and it is on track to merge the petroleum segment with Woodside Petroleum Limited (ASX: WPL).
Once that divestment happens, that will leave the business with the following exposures: iron ore, coal, copper, nickel and potash.
The boss of BHP, Mike Henry, has spoken to the Australian Financial Review about the company’s plans. He said:
One of the objectives I have is to create and secure more options for growth in future-facing commodities, which we’ve said are copper, nickel and potash.
As the world progresses on decarbonisation and electrification, it’s going to need more copper and nickel.
There’s a huge opportunity ahead for Australia in resources. You only have to think about where we sit geographically.
You’ve got billions of people in broader Asia and South-East Asia, all seeking a higher standard of living where we’re going to see growth for decades to come. Australia is at the centre of all of that and able to help make some of that happen.
Different resources will play a key part
Whilst iron ore has been a very important commodity for Australia’s resources boom over the last decade (and have helped the BHP share price), it could be other materials that grow in importance over the next decade.
Mr Henry said that Australia is going to have to work harder to stay competitive and take advantage of the global demand for some of the commodities that it offers.
Australia isn’t a world leader in copper, nickel or potash. But it is doing well with lithium for electric vehicles and other types of energy storage.
One suggestion for Australia was that it can increase funding to support smaller-sized businesses that can help with exploration, cybersecurity and new technologies for mining according to the AFR. Those businesses could then expand globally and/or into other sectors.
Mr Henry is aiming for growing value for shareholders.
How can BHP achieve that? It can be done with “sustained operational excellence” which can produce both financial returns and allows management to focus on growing the business in other areas.
The company is going to be pursuing those future-focused commodities like copper, nickel and potash. BHP is working on removing its whole thermal coal business, as well as a lot of its metallurgical coal business.
BHP share price target from brokers
UBS rates BHP shares as ‘neutral’, though the price target is only $42 on expectations of lower resources prices over the next year or two. It also thinks BHP will have to start choosing between investing for growth and paying big cash payments to investors.
However, Macquarie currently rates BHP as a buy with a price target of $53 thanks to the current strong environment for commodities.
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