Mining giant BHP
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BHP warns of turbulence – collect anyway?

Mining giant BHP (NYSE:BHP) has released its third-quarter results. The results were mixed, but the full-year guidance remains intact. However, there are signs of turbulence in the coming months. The market acknowledged the uncertainties yesterday with a slight minus. Today was another -2.3% down to AU$38.35. Should investors keep their distance here or add more?

BHP is one of the largest mining groups in the world and focuses on iron, copper, coal and nickel. The Australian multinational is based in Melbourne and employs around 80,000 people. The mines are spread across North and South America as well as Australia and Great Britain. The market capitalization is AU$179 billion (approx. EUR 114 billion).

Bearish trend but with strong support

The course of BHP has so far been friendly for a cyclical stock. At the beginning of the year, stocks benefited from the war in Ukraine and hit a double high between April and June. On June 8, the stock climbed to its year-to-date high of AU$47.90.

Since then, the stock has been in a mild correction phase. The bears have failed the strong support at AU$36 three times in the last three months. If this falls, it can quickly go down to 32 AU$.

Mixed quarter

In contrast to the second quarter of 2022, the production data deteriorated noticeably in the third quarter. Copper production fell 11%. The coal sector caused particular problems. Due to heavy rains in Australia, metallurgical coal production fell 19% to 6.7 million tons. Thermal coal was even worse, falling 33% to 2.6 million tonnes.

On the other hand, the indicators for iron and nickel offer some consolation. Nickel production increased by +10% while iron ore recorded a slight increase of +1%. A stable order situation in the iron ore sector is of vital importance for BHP. Why? Most of the turnover is generated with the export of silver-colored ore.

Intact prognosis and words of warning

Despite the deterioration in some key figures, the CEO of BHP, Mike Henry, does not see the annual forecast in jeopardy. The goals set for 2022 will all be achieved – that is the credo. However, the CEO is less optimistic about the coming months:

We expect global macroeconomic uncertainties to continue impacting supply chains, energy costs, labor markets and availability of equipment and materials in the near term.

However, Mike Henry sees the mining veteran as well positioned for this difficult phase. He has good reasons: the group’s coffers are bulging, debt reduction is running smoothly and the energy transition has only just begun.

Conclusion: No hassle when buying

BHP stock remains a solid investment over the long term with good prospects for double-digit dividend yields. It is also indispensable in any portfolio that wants to have its finger on the pulse of the energy transition. Because the Australians supply the raw materials for the future. Without them, the decarbonization of heavy industry and the electrification of mobility would be unthinkable.

In the short term, however, the prospects for BHP and other mining companies are clouding over. The Chinese economic engine is running out of steam. This is a problem to be taken seriously, because over 70% of iron ore exports go to the Middle Kingdom. If demand falls, the prices of BHP, Rio Tinto (NYSE:RIO) and Vale (NYSE:VALE) will follow.

For investors, however, this offers good starting conditions: With a P/E ratio of 6, the BHP Group is valued favorably. If things continue to go downhill in the coming weeks and months, it is worth collecting larger quantities and buying anti-cyclically.