The BHP Group Ltd (ASX: BHP) share price has sunk around 20% since the start of 2024. Given the current environment, I think now is a good time to ask if the ASX mining share giant is worth buying.
ASX iron ore shares like BHP, Rio Tinto Ltd (ASX: RIO) and Fortescue Ltd (ASX: FMG) regularly go through volatility as the iron ore price changes.
The calendar year to date (2024) has seen the iron ore price drop from above US$140 per tonne to below US$100 per tonne, which I believe explains the pessimism around BHP shares.
BHP recently reported its FY24 result, so let's remind ourselves of the main financial numbers.
FY24 recap
The mining giant reported revenue increased to US$55.7 billion, underlying attributable profit rose 2% to US$13.7 billion, and attributable profit dropped 39% to US$7.9 billion. The statutory profit took a hit from the impairments related to Samarco and its nickel operations.
BHP's annual dividend of US$1.46 represented a year-over-year cut of 14%, so shareholders aren't receiving as much passive income.
The company increased its capital and exploration expenditures by 31% to US$9.3 billion, with increased expenditures on copper and potash. In July, it signed an agreement with Lundin Mining to jointly acquire Filo Corp and enter a joint venture to develop the Filo del Sol and Josemaria copper projects in South America.
Is this a good time to invest in BHP shares?
If we look at the BHP share price over the past four years, the ASX mining share hasn't been cheaper than today's price for long.
However, the iron ore price has recovered in the past thanks to a resurgence of Chinese demand. It wouldn't surprise me if demand recovers again later this year — the last few jumps in the iron ore price were not widely anticipated by the market.
However, investors should bear in mind there is no economic rule that says Chinese demand will recover in cycles over any particular length of time.
Plus, as the months go by, we're getting closer to when additional supply will come online, affecting the supply and demand dynamic. The huge Simandou project in Africa may permanently lower the iron ore price from what it otherwise would have been.
However, I believe BHP is making the right moves to diversify its commodity portfolio and expand into copper, which could be less volatile and less reliant on Chinese demand.
According to the broker UBS, BHP's net profit after tax (NPAT) is projected to fall in FY25 to US$12 billion, make US$12 billion of NPAT again in FY26, drop to US$11.1 billion in FY27 and decline again to US$9.9 billion in FY28.
With higher iron ore supply coming, I don't think BHP is a great medium-term pick because iron ore earnings could fall from FY24 levels if the iron ore price declines.
However, if it can effectively shift its commodity portfolio to focus on copper, then this lower price could represent a good long-term opportunity on a five-year plus time horizon, particularly if it continues to be generous with its dividends.
