What are the pros and cons of buying BHP shares before the company reports?

Should investors dig into BHP before its result?

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BHP Group Ltd (ASX: BHP) shares are under the spotlight this week as the company is due to report its FY24 half-year result tomorrow. Should investors buy the ASX mining share before it reports?

The BHP share price has fallen in recent times, down by 9.75% since the start of the year.

What's gone wrong lately for BHP shares?

It's understandable why investors are a little less optimistic than before. The iron ore price has dipped below US$130 per tonne, whereas it was above US$140 per tonne at the start of January 2024.

Conditions have deteriorated for the nickel industry, putting pressure on the profitability potential for that segment. The ASX mining share recently recognised a huge impairment of its nickel division to the tune of US$3.5 billion, pre-tax.

BHP also said it would recognise an income statement charge of approximately US$3.1 billion, pre-tax. This relates to the Samarco dam failure in Brazil.

BHP Brasil's provision for the Samarco dam failure will be US$6.5 billion as at 31 December 2023. It reflects the "assessment of the estimated costs to resolve all aspects of the Federal Public Prosecution Office claim and the framework agreement obligations".

Time to buy before earnings results?

We already know a lot about the BHP result – we've heard about the large impairments and also the operational update. We know how much the company produced, the realised price and the production cost.

There may not be much of a surprise in the result in the income statement, so the BHP share price may not react strongly either way.

I think there is a question mark hanging over what size the BHP dividend will be. Significant items that were recently announced (the nickel and Samarco issues) could lead to BHP paying a smaller dividend than it otherwise may have. If investors are focused on the dividend, there's a chance they could be disappointed.

Of course, the BHP share price has already fallen, so investors may already have factored in the bad news.

According to the estimate on Commsec, BHP shares are valued at 10.7x FY24's estimated earnings with a possible grossed-up dividend yield of 7.6%.

Foolish takeaway

Regardless of the fact that BHP is set to report tomorrow, I don't think now is the best time to invest because the iron ore price is still at a strong level.

A strong iron ore price is good for short-term profitability, but it also means the BHP share price is higher than if the iron ore price was around, say, US$100 per tonne.

The right time to invest in an ASX mining share is when the commodity price is weak, in my opinion. I believe we can make good returns with cyclical ASX shares as long as we buy at the weak point of the cycle.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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