BHP Group Limited (BHP) Earnings Call Transcript & Summary

Welcome to today's presentation of BHP's results for the 2026 financial year. My name is Brandon Craig, and I'm joined by our Chief Financial Officer, Vandita Pant. As Chief Executive Officer, it is a pleasure for me to host this call with all of you this morning. But let me begin by saying that BHP is in great shape. Mike has left us a strong platform with a Tier 1 portfolio, an operating system that continues to improve and a balance sheet that allows us to invest through the cycle. I intend to build on this strong foundation by adding even greater pace, improving our operational practices and focusing on our customers and markets. Today, we have great momentum, which you will see in our operational and financial results. The opportunity now is to accelerate performance, to lift safety, productivity and growth to the next level while maintaining the discipline that has served shareholders well over many years. That is the agenda I am focused on as Chief Executive Officer, accelerating performance, delivering programmatic growth and strengthening our foundations for the future. But none of that matters if our people don't go home safely. So let me start with that. Only a few weeks ago, a colleague of ours working for a contracting partner never made it home. His loss is deeply felt across BHP, the mining community in the Bowen Basin, and in particular, at Peak Downs mine. Our thoughts are with his loved ones. As a leader, this is deeply personal. And speaking for BHP, we are committed to learning from this and improving safety further. Our teams are working through the investigation, and leaders across our global operations are reverifying our critical controls for higher risk activities. We have made significant progress over recent years, strengthening our safety culture and our systems to meet our aspiration to eliminate fatalities and high potential injuries from BHP. But progress is not the measure. The only acceptable number is 0, and we are not there yet. We will continue to embed the BHP operating system, which underpins safe operations. We will invest more and move faster on technology, and we will continue to enhance safety standards and work together to implement them. Turning now to our results. BHP's 2026 financial year performance consolidates our position as the world's leading mining company. We are the world's largest copper producer. And for the second consecutive year, we produced around 2 million tonnes of copper, which contributed more than half of our annual EBITDA for the first time. Our commitment to operational excellence also delivered record production at Western Australia Iron Ore. This strong operating performance, along with proceeds from the Antamina silver streaming transaction, has enabled the Board to determine a dividend for the June half of USD 0.99 per share. This takes our full-year dividend to $8.7 billion. The world has always relied on mining, and today is no different. Yet despite this, mining now represents a much smaller share of global equity markets than it did just 15 years ago. A lot of capital is flowing into artificial intelligence, data centers and the energy transition, and countries and companies are increasingly focused on energy and food security, supply chain resilience and industrial capacity. This means demand today for commodities, such as copper, is much more broad-based than during China's boom in the late 2000s. So global progress develops along these pathways, as we expect, mining will be required more than ever. And as the world's biggest miner, this provides significant opportunities for BHP. It is also why we have been so deliberate in our portfolio choices over decades. It is central to value creation. BHP commodities must benefit from global megatrends and have sufficiently diverse demand drivers for resilience through the cycle. They must have large global seaborne markets. Value must be captured upstream in line with our capabilities. And they must have steep cost curves so we can apply our operational expertise to deliver leading margins. Within those commodities, we seek the best possible assets, very large, long-life, low cost and expandable, assets that we can operate for decades and that generate robust margins and returns. The takeaway, BHP has Tier 1 assets in commodities the world needs. This is a truly differentiated portfolio and provides a meaningful and durable competitive advantage. Now, as good as BHP's position is today, we have always challenged ourselves to do better. That means focusing on 3 priorities: accelerating performance, leveraging the BHP operating system and technology to unlock the next horizon of safety, productivity and capability, delivering disciplined programmatic growth and developing the next generation of growth options in future-facing commodities and strengthening our foundations across safety, social value and talent and deepening partnerships to further increase our resilience. So greater ambition, more velocity, but the same discipline. Let me explain this briefly. It has been 7 years since we implemented the BHP operating system. BOS creates a safer and more productive workplace and enables continuously improving performance. It's about culture, systems and behaviors as much as underlying operational disciplines and practices. The more we embed BOS, the better we perform. Vandita will talk to some examples of where we've seen improvements shortly. Few companies have been able to stick consistently to a system of this nature, which matters because these systems won't just generate results overnight. You need to keep at it for years and decades. We assess BOS maturity through an Operational Excellence Index, or OEI. And since 2020, we have increased our score from 36 to 52. Over this period, we have actioned around 7,000 initiatives right across the business. And in their first year of implementation, these delivered cost savings of more than $5 billion, but there is still so much more we can do. To capture this value, I have tasked our teams to deliver significant sustained improvement towards a company-wide mark of 65. That is beyond what is considered to be world-leading based on external benchmarks. Our aspiration is to pursue the limits of performance and push out the productivity frontier. And while BOS creates the foundation for performance improvement, technology accelerates it. Simply, BOS and technology are mutually reinforcing. Technology is already creating value across our business. By the end of 2026, technology initiatives were delivering incremental EBITDA at an annual run rate of almost $500 million. We aim to increase that to beyond $650 million by the end of 2027. But many of our examples to date are single-point applications, just the first wave of value creation. Applying technology to integrate the entire supply chain from pit to port means we can optimize the whole system more dynamically. That will liberate more productive hours, which means more production leading then to lower cost. While I am passionate about the potential to accelerate performance improvement, I am also focused on value-accretive volume growth. Our world-class portfolio of high-quality growth projects is estimated to deliver 3% to 4% per year of growth over 2027 to 2035, including around 5% per year in our copper business. I'm focused on ensuring we deliver this on time and on budget. But to continue this rate of growth beyond 2035, we need to build the next generation of high-quality options. This means more partnerships and adjacencies like we have with Sierra Gorda in Chile and Rio Tinto in the Pilbara, more creativity in the way we think about growth like our investment in Faraday Copper and more ambitious exploration and early-stage investments to secure the next big deposits like Vicuña. Now, while investors understand the quality of BHP's portfolio, we believe there is more value to be recognized in the growth we have ahead of us. For example, many in the investment community model growth of around 2% per year through to 2035, well below our estimates of 3% to 4%. We have a track record of doing what we say we will do and meeting our guidance reliably. So our job is clear: safely accelerate performance, execute our projects well and build the next generation of options and develop the strategic relationships that build our resilience. With that, I'll hand over to Vandita to take you through our financial performance.

Thanks, Brandon. This has been another great year financially. Our portfolio delivered high margins and strong cash flow, which allowed us to invest in our growth and deliver very healthy shareholder returns. Let me take you through the numbers. Underlying EBITDA for the year was $33 billion, up 27% with a margin of almost 60%. Underlying attributable profit was $13 billion, up 30%, and return on capital employed was 26%. After exceptional items, including a $2.3 billion noncash impairment relating to Jansen, our total attributable profit increased by 9% to almost $10 billion. Cash flow generation was strong, and our balance sheet strengthened with net debt below $9 billion. Based on the strength of these results and proceeds from the Antamina silver streaming agreement, we determined a final dividend of $5 billion. This brings our full-year dividend to $8.7 billion, the highest in 4 years. The earnings waterfall reflects a familiar theme. While higher prices were a clear tailwind, up 35% for copper and 3% for iron ore, our operational performance and cost discipline enabled us to fully capture that benefit. Across the group, unit costs improved over 6% despite currency pressures, inflation and higher diesel and acid prices. This strong performance was achieved across the portfolio. Our copper business generated a record $18 billion of EBITDA, 54% of the group total at a margin of 70%. Our operational performance, combined with a $4.5 billion contribution from byproducts, saw unit costs improve by 10% at Escondida and over 70% at Copper SA, an impressive result. WAIO achieved record production and shipments. It was another year in which we delivered a real cost decline with C1 unit costs up just 1%. And in steelmaking coal, BMA continues to improve performance with production up 10% over the last 2 years and the highest stripping volumes in 5 years. This slide shows the clear correlation between BOS and performance. The higher the OEI, the more stable and more productive our operations. And this can be seen across assets, processes and over time. It's this last point that's very important. As Brandon said, we don't realize these benefits sustainably overnight. At WAIO, steady improvements in rail productivity have supported record shipments. At Copper SA, we have improved operational stability with year-on-year records at the smelter since the last major maintenance campaign. And at Escondida, we have delivered record material mined and record concentrator throughput, helping to offset the impact of grade. This has a real impact on the bottom line. Take WAIO as an example. It has remained the world's lowest cost major iron ore producer for a seventh consecutive year. And it has reduced costs in real terms post-COVID, the only major producer to do so. In 2026 alone, this has compounded to a cost saving of over $100 million on a real basis. Our 2027 guidance suggests that we will maintain our cost leadership. Why are we so focused on operational excellence? Firstly, because it provides resilience through the cycle. In addition, inflationary environments drive higher marginal cost, resulting in higher commodity prices across the industry. This gives reliable operators of low-cost assets, like BHP, the ability to capture higher margins. You can see this in our cash flows. Our diversified portfolio by design is another competitive advantage. It supports resilient cash flow across market conditions. That allows us to invest in growth and deliver strong returns to shareholders. As this slide shows, at spot prices, we expect to generate around $50 billion in attributable free cash flow over the next 5 years. That is after funding our investment in growth. And even under a sustained multiyear downside commodity price scenario, we still expect to generate around $15 billion of free cash flow over the period. In short, BHP's unique combination of scale, performance and diversification supports significant and resilient cash flows. Our capital allocation framework, CAF, is how we maximize value from that cash. The discipline it instills has served shareholders well for over a decade now. The foundation of CAF is our consistently strong margins and cash flows, average margins over 50% over the past 25 years and net operating cash flow above $15 billion in all bar 1 year since 2010. We also continue to release value from our capital base and assets. This includes the potential to unlock around $10 billion in undervalued capital with $6.3 billion of this already executed in the last 9 months. On top of this, we received almost $1 billion in cash during the year from previously announced noncore asset sales. This has allowed us to maintain a very strong balance sheet, deliver attractive returns to shareholders and continue to invest in our high-quality growth. We now expect CapEx of around $11 billion per year on average over the medium term. This is in nominal terms at constant FX rates. This reflects updated estimates for Jansen Stage 2 and changes in FX, partly offset by improved capital productivity across the rest of the portfolio. More than half of our growth spend will go to copper and approximately 2/3 if we include investment in our non-operated joint ventures. An important feature of our copper CapEx program is that it is entirely self-funding at consensus prices. This is a result of being the largest copper producer, which provides a large base of cash flow today and our approach to sequencing and partnerships, which allows us to manage spend. This gives us confidence that we can deliver our 4 attractive copper projects at the same time even without higher copper prices. And once these projects ramp up, not only will they drive meaningful production growth, they will also deliver significant incremental cash flow. Add to that, the cash flows from our iron ore and potash businesses, and we have even more flexibility to fund growth, keep our balance sheet strong and provide attractive cash returns to shareholders. With that, I'll hand back to Brandon.

Thanks, Vandita. For BHP, the implications are clear. The world needs more of the commodities we produce. But the key question is where they will come from. WAIO is an asset I know well and which continues to deliver year in, year out. At this asset, we have delivered real cost discipline, which is reflected in unit costs, margins and free cash flow. It is worth repeating, WAIO produces around $10 per tonne more free cash flow than its closest peer, and our goal is to increase this margin further. Our plans to progressively increase production and lower unit costs position this outstanding asset to generate value well into the future. Shifting to metallurgical coal. BMA is home to some of the world's best steelmaking coal, an ingredient that will remain critical to steelmaking for decades. Having spent a fair bit of time there as well, I know what that business is capable of and firmly believe its best years are in front of it. We have a plan to improve performance and returns, and that plan doesn't include selling the business. Our ongoing focus on strengthening the supply chain and cost productivity is expected to lift production and reduce costs over the medium term. And we believe there is potential to invest further if fiscal conditions improve. While WAIO and BMA are exceptional businesses, we are also broadening the portfolio. Jansen will add an attractive new earnings stream, and we are very focused on its delivery. Stage 1 remains on track for first production mid next calendar year, and we firmly believe it will be another Tier 1 asset for BHP, very large, long-life, low cost and expandable. Once ramped up, it is expected to deliver around $1 billion of EBITDA per year per stage with margins above 60%, and a great example of why we focus on the commodities that we do. Jansen also adds something the rest of the portfolio does not. It will make BHP stronger because potash demand drivers and key customer markets are differentiated from our other commodities. That means prices are less correlated, driving even more stability in earnings and cash flow. Now, growth only creates value if we deliver it well. Project delivery is, therefore, a core part of my agenda. We have a solid track record in this area. Over the past decade, around 80% of our projects have come in on time and on budget, the best of the diversified miners. But Jansen has highlighted that we need to further improve our major project performance, and we are very focused on this. Embedding BOS and technology into projects is at the center of our approach, and I'm excited to see how much further we can improve our project execution just as we have seen across operational performance. While potash broadens our portfolio, copper remains our largest and most important growth opportunity. Our lower-risk pathway represents growth of around 50% by the mid-2030s to around 2.5 million tonnes per year of attributable copper equivalent production. This includes over 0.5 million tonnes in copper equivalent terms of byproducts, by itself, the size of a significant copper producer. This is attractive, capital efficient, predominantly brownfield growth that will further increase the proportion of our earnings from copper. This is an exciting position to be in. The world needs more copper, and BHP has the assets, options and capability to help supply it, assets like Escondida, which continues to perform strongly. It remains a world-class copper asset that we intend to invest in further. We have just approved around $500 million in precommitment funding for Escondida's new concentrator and expect to make a final investment decision in 2027 or 2028. As we move towards that point, the project continues to improve. The optimized scope is expected to deliver higher throughput, production and returns with the updated capital estimate reflecting the larger scale and design improvements. It is a great example of our project delivery approach and the way we continuously look to optimize our projects. At Copper South Australia, we delivered the highest production at Olympic Dam in 20 years, and our unit cost declined to just $0.32 per pound, benefiting from $2.3 billion of byproduct revenue. As a result, we set new records for EBITDA and free cash flow. This consistency and performance provides a strong platform from which to invest. We are looking at ways to accelerate production growth and look forward to providing an update on Copper South Australia at our site tour later this year. We are also progressing the next generation of copper mines, notably the Vicuña joint venture with Lundin Mining. During the half, Vicuña received environmental approval for Stage 1 as well as approval under Argentina's RIGI scheme, which provides fiscal stability for 40 years. Most recently, Vicuña signed a royalty agreement with the San Juan province. These are key milestones as we progress towards a final investment decision on Stage 1, potentially as early as the end of this calendar year. Once all 3 stages are fully developed, Vicuña has the potential to be a global top 5 copper and top 5 gold producing asset. So in closing, BHP is a company in tremendous health. We are delivering operationally, financially, have an industry-leading growth pipeline, and we are investing in the project capability to deliver it for value. This is a platform for success and a testament to the hard work of our teams across the world. The agenda from here is clear: first, accelerate performance using BOS and technology to deliver safer, more stable operations and lower unit costs; second, deliver disciplined programmatic growth with industry-leading project execution capability; and third, build on our foundations and strengthen our resilience. Across all 3, discipline remains central. Our competitive advantage is not about any single asset. It is the combination of world-class assets, operational excellence, disciplined capital allocation, technology and a balance sheet that allows us to invest consistently through the cycle. I am truly excited about what the future holds for BHP and what we can deliver together. Thank you for your support.