The BHP Group Ltd (ASX: BHP) share price has dropped more than 10% since the end of September 2024, as the chart below shows. When a huge business like this one falls significantly, it's worthwhile considering if it's a buy.
The ASX mining share recently reported its FY25 half-year result, which showed both positives and negatives.
BHP's revenue fell 8% to US$25.2 billion, underlying operating profit (EBITDA) declined 11% to US$12.4 billion, and underlying attributable profit dropped 23% to US$5.1 billion.
The business said the weakness was primarily a result of the decline in the iron ore price and steelmaking coal prices, partially offset by higher copper prices.
As a resource business, it's common to see changes in commodity prices due to their cyclical nature. Production costs don't typically change, so a reduction of the resource price can significantly eat into profit if revenue falls, as we've seen.
Is this a turnaround opportunity? I'll share some of my thoughts.
Is it time to buy at this BHP share price?
Of course, it's too simplistic to say that the business is a buy just because its share price has dropped. I think it's important to think about whether the current share price is undervaluing the business or not.
The ASX mining share's pain in the first half of FY25 was related to headwinds in the price of iron ore. BHP said iron ore benchmark prices traded around the US$100 per tonne level in HY25.
The iron ore price was recently around US$107 per tonne, a four-month high. Depending on commodity prices, the company can increase its profit in the second half of FY25 compared to the first half of FY25. Even if iron ore stays around/above US$100 per tonne, the company can still make good profits due to its very low production costs compared to peers.
BHP's iron ore division was still the biggest generator of earnings in the first half of FY25. The iron ore division generated US$7.2 billion of underlying operating profit (EBITDA) in HY25 – that represented a year-over-year decline of 26%.
A shining star for BHP is its growing copper division, which I think can deliver more resilient earnings than iron ore. Copper profits could keep rising as the business grows production.
For me, the business looks undervalued around/under $40 because the solid iron ore price could help its earnings recover/stabilise in the short term, while its other commodity plays, such as copper and potash, could help grow and diversify earnings in the longer term.
However, I'm not expecting the iron ore price to remain as strong as it is today for the next five years.
While there is a concern that US tariffs on China could hurt the Chinese economy, I believe the Asian superpower may then launch financial stimulus to boost the economy, which could help increase steel (and iron ore) demand, supporting the miner's profit and the BHP share price.
