The BHP Group Ltd (ASX: BHP) share price has gone up 2% today, is it a buy?
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What is BHP?
BHP describes itself as a world-leading resources company. It extracts and processes minerals, oil and gas with the help of over 80,000 employees and contractors around the world, predominately in Australia and the Americas. Its headquarters are based in Melbourne, Australia.
It has a number of different commodities that it deals with including iron ore, metallurgical coal, energy coal, copper, oil and gas.
The company can trace its history back to 1851. It was formed in a merger between BHP and Billiton. The Billiton name comes from a tin mine on an island in Indonesia, Billiton (Belitung) Island.
What has happened recently to BHP?
Since the end of October 2020, the BHP share price has risen by 35%.
A number of things have happened since then. The iron ore price has remained elevated, which is a core profit-making division of the big resource business.
At the end of December it announced that Samarco in Brazil had met the licensing requirements to restart operations at its Germano complex in Minas Gerais and its Ubu complex in Espirito Santo, Brazil, and has commenced iron ore pellet production. These operations were suspended after the failure of the Fundao dam in November 2015.
BHP's most recent production update was the report for the six months to December 2020.
In the first half of FY21 it said that petroleum production was down 12% to 50.5 million barrels of oil equivalent (MMboe). Copper production was down 5% to 841kt, iron ore production was up 6% to 128.4Mt, metallurgical coal production was down 5% to 19.2Mt and energy coal production was down 30% to 8.2Mt.
As a result of the first half, production guidance for FY21 was unchanged for petroleum and metallurgical coal, but iron ore guidance went up to between 245Mt and 255Mt as a result of the restart of Samarco. Full year unit cost guidance was also unchanged for FY21.
BHP did disclose that the financial result for the first half of FY21 is expected to include an impairment charge of between US$1.15 billion and US$1.25 billion after tax.
Is the BHP share price a buy?
Brokers are generally more positive than negative about BHP shares at the moment.
Broker Ord Minnett has a buy rating on BHP, with a positive outlook on the iron ore price this year despite COVID-19 impacts, raising its expectations for the price to be US$134 per tonne, which should mean higher profits for BHP than previously expected in FY21 and perhaps the first half of FY22.
Ord Minnett has a BHP share price target of $53 for the big resource business.
However, whilst Morgans thinks that BHP will benefit from the high copper and iron ore prices, the broker has a share price target of around $40.50 for the miner. But strong near-term earnings could see attractive dividends and even a share buyback from BHP.
