Have you seen the new numbers from BHP yet? In fact, things have not been going very well for the Australian mining giant lately. However, the recently published business figures turned out to be significantly better than expected by the market. Nevertheless, as an investor, you should also be aware of the negative aspects, as there is still plenty of room for improvement – which could also help the stock, which has been performing rather poorly lately, to pick up.

Let’s take a look at the report on the 2023 financial year (as of June 2023) that has been published for some time now and start with the cash flow. According to this, BHP’s operating cash inflow amounted to USD 18.7 billion in the 12 months up to and including June, which is -42% lower than the value from the previous year and still -31% lower than the 2021 comparison value. The decline in operating cash flow can mainly be attributed to two factors.

BHP: Lower selling prices, rising costs First: The Australian iron ore giant achieved significantly lower selling prices for its products in the 2023 fiscal year due to macroeconomic resistance. The average price for iron ore fell by -18.2%, that for copper by -12.3% and that for metallurgical coal by -21.9%.

Secondly: The costs of both production and project financing increased significantly in the 2023 financial year – driven by persistent inflation and higher interest rates. In the giant copper mine Escondida, for example, costs per pound produced increased by +16.6%, at the Spence site by +24.1%, and in the Australian Pilbara iron ore region by a total of +5.8%.

So BHP achieved lower prices for its products while also having to accept higher production costs. Accordingly, the impact on cash flow. Important for you: However, the situation could soon change. There are significant improvements on both the expenditure and revenue sides.

Commodity upcycle likely ahead Commodity prices could switch to a sustainable upcycle in 2024 and beyond, leaving behind the currently rather depressive sentiment. This turnaround is supported, among other things, by upcoming interest rate cuts, the surprising economic resilience of some economies, and, last but not least, the long-term driver of the energy transition.

For years, commodity experts have been forecasting a supercycle (sustainably higher prices) driven by the growth of ecological technologies. The complete breakthrough of this cycle has so far been prevented by the difficult macroeconomic situation, but is likely to finally come to fruition in the wake of a global upturn and a lower interest rate environment.

Job cuts, more efficiency: BHP wants to cut costs On the other hand, BHP has a lot of room to cut costs. Just a few days ago, CEO Mike Henry announced a far-reaching restructuring of the traditional company, according to a report by the Australian business newspaper „Financial Review“. This is intended to significantly improve the efficiency of the global business . This means that Henry plans to cut jobs and decentralize management.

The individual mining operations are to take on more responsibility in order to enable faster and more targeted decision-making on site. As a result, the respective mine managements will also decide how many and which of the employees will now be dismissed. Experts expect that the nickel projects will be particularly affected by the job cuts. The steel and battery metal had depreciated significantly in 2023 – but at least sent (narrow) recovery signals in February 2024, at a low level . In return, investments in the probably most important energy transition metal, copper, are expected to continue to be vigorously pursued.

It is not clear from the „Financial Review“ report how many jobs in total will fall victim to the red pen. It was also unclear how much the cost savings from job cuts, team mergers, and decentralization will actually be. In the coming months, the Group’s management is likely to provide more detailed forecasts on this.

My conclusion for you BHP remains a cornerstone of the global economy with its commodities and is simply too big to fail . This realization alone gives the stock a strong long-term perspective and, compared to some smaller commodity stocks, a higher level of investment security . But take a look at the stock performance of BHP yourself (as of March 4, 2024, 10:30 a.m.):

Source: www.aktienscreener.com

Since 2014, the commodity all-rounder has repeatedly reached new highs despite some serious setbacks (2016 and 2020). Cyclicality is an integral part of this paper. Currently, however, several factors suggest that the BHP share could ignite a new sustainable turbo upwards in 2024 or at the latest in 2025. You should definitely not underestimate the Australian giant.