Are you thinking of buying BHP Group Ltd (ASX: BHP) shares?
Well, let's take a look at what analysts at Macquarie Group Ltd (ASX: MQG) are saying about the mining giant following the release of its quarterly update.
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What impressed Macquarie
First up, copper. BHP's Escondida mine in Chile has been the subject of scrutiny lately for its declining output, but Macquarie sees recent developments as an encouraging step forward.
Thanks to a clever optimisation plan, BHP is extending the life of the Los Colorados concentrator. That decision will keep milling capacity humming at 135–140mtpa all the way to FY 2031, rather than tapering off from FY 2029. Macquarie responded by increasing its group copper production forecasts by up to 11% across FY 2029 to FY 2031. It said:
One of the critiques of BHP at the Nov site visit was pullback in copper volumes and growth trajectory vs peers over medium term. Optimisation initiatives to extend life of Los Colorados, which maintains milling volumes at ~135-140mtpa, until Los Colorados is replaced. We increase our Group Cu production by 3%/11%/5% over FY29-31 and defer demolition expenditure until FY31.
BHP's iron ore production also got a nod. While wet weather has played havoc with some producers, BHP's operations in Western Australis held up better than most during the cyclone season. Despite some product variability challenges, this was considered a win in a tough quarter for the sector.
What didn't go to plan
Not everything was smooth sailing. BHP's BMA coal business faced setbacks at Broadmeadow, where geotechnical issues and heavy rain slowed progress.
Macquarie has responded by cutting BMA production guidance for FY25 by 2% and lifting cost expectations for the following years.
Should you buy BHP shares?
Overall, Macquarie was pleased with the update and remains positive on BHP and its shares. In response, the broker has reaffirmed its outperform rating and $42.00 price target on them.
Based on its current share price of $37.67, this implies potential upside of 11.5% for investors over the next 12 months.
The broker also expects a dividend yield of approximately 4% in FY 2025, boosting the total return beyond 15%.
Commenting on its outperform rating, it said:
With the Escondida improved outlook, we note BHP is actively looking to improve FCF outcomes over the medium term horizon. Pricing in US$72/t iron ore (all other prices at spot), we see value here noting its asset quality; we prefer BHP over RIO.
