---
endpoint: analytics
pattern: Materials
status: done
latency_ms: 168084
conversation_id: 1ba530ce-45ce-48af-b291-6b65c3085920
citations: 6
created: 2026-05-31 18:39:54Z
---

# What’s the bull case bear case for BHP?

# BHP Group (BHP AU) — Bull Case vs Bear Case

CLSA's latest standalone BHP coverage is the **3QFY25 result note (17-Apr-2025)**, rated **O-PF (Outperform), TP A$39.50** [5][6]. CLSA also explicitly flagged BHP (alongside RIO and ASX gold producers) as expected to **outperform the ASX Resources sector in 2025** [4]. Below is the synthesized bull / bear framework, combining internal CLSA research with management commentary from BHP's own calls.

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## Bull Case

### 1. Diversified, world-class, long-life asset base
BHP's investment thesis rests on a **diversified portfolio of world-class, long-life assets across iron ore, copper, and coal**, providing a natural hedge against individual commodity cycles, with scale and operational efficiency as durable competitive advantages [1]. Management frames the same point structurally: BHP has the **world's largest copper endowment** (anchored by Escondida, at the highest average grade of the competitor group), the world's second-largest nickel sulfide resource, plus large-scale potash in Saskatchewan and Tier-1 iron ore and met coal [8].

### 2. Copper is becoming the structural growth engine
- **3QFY25 copper production beat consensus by 5%**, with Escondida +7% and Pampa Norte +8% vs Visible Alpha consensus [6].
- The key positive in the quarter was **upgraded medium-term copper guidance**: BHP raised its post-2027 Escondida outlook from c.740kt/yr to **900kt–1.0Mt/yr out to FY31**, with CLSA flagging this as a clear positive for the business [5][6].
- FY25 group copper guidance is **1,845–2,045kt**, and iron ore **255–265.5Mt** [7].
- **Macro tailwind**: the industry needs ~$250bn of copper investment over the next 6–7 years, yet only ~$40–50bn is committed — a structural supply gap that should support copper prices for incumbents with low-cost, in-production tonnes [9].

### 3. Lowest-cost iron ore + China demand still resilient
Western Australian Iron Ore (WAIO) has been the **lowest-cost major iron ore producer globally** for four years running. China produced **~1 billion tonnes of steel for the fifth consecutive year** in 2024, with weak real estate offset by infrastructure, renewables and transportation demand [10].

### 4. Energy-transition portfolio reshape
BHP has deliberately reshaped the portfolio to align with global mega-trends: **copper for renewables, nickel for EVs, iron ore + higher-quality met coal for decarbonization-related steel, and potash for food security** [11].

### 5. Growth catalysts in the pipeline
- **Jansen Stage 1** (potash) is on track and on budget — first production pulled forward from 2027 into **late 2026** [12]. Jansen Stage 2 sanctioned at US$4.9bn for first production around FY29 [12].
- CLSA explicitly lists catalysts: **completion of growth projects (Jansen), rises in iron ore / copper prices on global recovery, and the next quarterly print** [2].
- WAIO debottlenecking studies underway to grow output to **300Mtpa** (and potentially 330Mtpa).

### 6. Tactical setup into 2025
CLSA argues 2025/26 VA consensus already prices in **downside risk to commodity prices with little valuation discount**, and in that context expects large-cap diversified miners (BHP + RIO) and gold producers (NST, EVN, NEM) to outperform [4].

### Valuation framework
CLSA values BHP using a **50/50 blended SOTP-DCF + EBITDA multiple**: DCF uses **9.9% WACC** (20% gearing, 5.1% debt cost, 4.5% risk-free rate, 1.20 beta, 5.5% ASX MRP), and the EBITDA multiple is **5.5x**, close to BHP's historical trading average. This underpins **TP A$39.50, O-PF** [2][5].

---

## Bear Case

### 1. Commodity price beta — the single biggest risk
The #1 downside risk in CLSA's framework is **changes in commodity prices, especially iron ore, copper and met-coal** [3]. BHP's earnings are highly geared to spot prices on three commodities that have all faced periodic demand scares.

### 2. China iron ore demand has peaked
Management itself concedes **China demand is in a "plateau phase"** and that significant **African supply (Simandou) will come online late this decade** — i.e. the iron ore market becomes more competitive into FY27–30, putting structural pressure on the cash-cow business [10].

### 3. Met coal — softer 3QFY25 and weather hits
3QFY25 metallurgical coal at BMA missed by 9% vs consensus, and **BMA cost guidance was raised 11% at the mid-point** vs prior guidance, even as the rest of FY25 guidance was reaffirmed [6].

### 4. FX and capital cost sensitivity
Earnings are highly sensitive to **AUD/USD and capital costs**, with shifts in financial markets cited as a key risk to both the P&L and the DCF [3].

### 5. Project execution & capex inflation
**Potential capex increases and delays for growth projects like Jansen** are a named risk [3]. Although Stage 1 has accelerated to late 2026, mega-projects in copper / potash have historically been prone to cost blow-outs across the industry.

### 6. Regulatory / tax exposure — Australia is high-tax
Australia's combined corporate tax + state royalty regime is punitive. At BMA in Queensland, the **effective tax rate is in excess of 62%**, per BHP's CFO — meaning marginal capital is increasingly directed to overseas exploration [13]. CLSA explicitly lists **regulatory risks, including new taxes and royalties in host jurisdictions** [3].

### 7. China growth and refinancing risk
Other downside risks: **global iron ore demand and China's economic growth, plus refinancing risk** [3]. A harder China slowdown — or a tariff-driven trade war — would simultaneously hit both iron ore and copper.

### 8. Operating / mine-depletion headwinds
Risks include **reserve revisions, natural disasters, opex pressure, and stay-in-business capex** [3]. The broader mining industry's **operational disruptions have roughly doubled vs the late 2010s**, and many of the largest copper deposits underpinning supply today were discovered 20–40 years ago, with new greenfield discoveries becoming deeper, more complex, and skewed to difficult jurisdictions [9].

### 9. Inflation drag
Management has flagged inflation biting into underlying costs, with **diesel rising from ~5% to ~8% of cash costs** at the peak of the energy spike — illustrative of the operating cost beta to broader commodity inflation cycles.

---

## Synthesis — How to weigh it

| Bull pillar | Bear counter |
|---|---|
| Diversified scale, lowest-cost iron ore [1][10] | Iron ore in plateau; African supply coming late decade [10] |
| Copper 3QFY25 beat + guidance upgrade to 900kt–1Mt [5][6] | Met coal miss + BMA cost guidance +11% [6] |
| Structural copper supply gap ($250bn need vs $40–50bn committed) [9] | Greenfields harder, deeper, riskier jurisdictions [9] |
| Jansen Stage 1 pulled forward to late 2026 [12] | Project capex / delay risk explicit in thesis [3] |
| Energy-transition portfolio reshape (Cu, Ni, potash) [11] | EBITDA multiple already at 5.5x historical average [2] |
| CLSA: BHP + RIO + gold producers to outperform ASX Resources in 2025 [4] | Commodity beta to China growth, AUD/USD, regulatory tax (BMA ETR >62%) [3][13] |

CLSA's net call **O-PF, TP A$39.50** reflects the bull case modestly outweighing the bears: the **diversified portfolio + copper growth story + Jansen + low-cost iron ore base** offset the fact that consensus has not yet meaningfully discounted commodity downside [2][4][5].

---

**Sources**

[1] Global metals & mining (Buy gold producers, Rio Tinto & BHP) — CLSA (07-May-2025) — 607958391LinqAlpha.PDF (Investment thesis)
[2] Global metals & mining (Buy gold producers, Rio Tinto & BHP) — CLSA (07-May-2025) — 607958391LinqAlpha.PDF (Catalysts / Valuation / Risks)
[3] BHP — O-PF (A solid 3Q result, led by Cu.) — CLSA (17-Apr-2025) — 607956168LinqAlpha.PDF (Investment risks)
[4] Global metals & mining — CLSA (07-May-2025) — 607958391LinqAlpha.PDF (Buy gold producers, RIO & BHP)
[5] BHP — O-PF (A strong 3QFY25 result) — CLSA (17-Apr-2025) — 607956139LinqAlpha.PDF (TP A$39.50; Cu beat; medium-term guidance upgrade)
[6] BHP — O-PF (A solid 3Q result, led by Cu.) — CLSA (17-Apr-2025) — 607956168LinqAlpha.PDF (3QFY25 vs consensus)
[7] BHP — O-PF (A solid 3Q result, led by Cu.) — CLSA (17-Apr-2025) — 607956168LinqAlpha.PDF (FY25 Production Guidance table)
[8] BHP Group — BofA Global Metals, Mining & Steel Conference (16-May-2023) — Mike Henry (Strategy / resource base)
[9] BHP Group — BofA Global Metals, Mining & Steel Conference (16-May-2023) — Mike Henry (Copper supply gap, greenfield challenges)
[10] BHP Group — Special Call — Vandita Pant (Iron ore demand: China steel, African supply)
[11] BHP Group — Shareholder/Analyst Call (FY23 AGM) — Portfolio reshape for energy transition
[12] BHP Group — BofA Global Metals, Mining & Steel Conference (16-May-2023) — Jansen Stage 1 & 2
[13] BHP Group — Special Call — David Lamont, CFO (BMA effective tax rate >62% in Queensland)

## Citations

- [8] **BHP Group Limited Presents at BofA Securities Global Metals, Mining & Steel Conference 2023, May-16-2023 09:00 AM** · external
- [9] **BHP Group Limited Presents at BofA Securities Global Metals, Mining & Steel Conference 2023, May-16-2023 09:00 AM** · external
- [10] **BHP Group Limited - Special Call** · external
- [11] **BHP Group Limited - Shareholder/Analyst Call** · external
- [12] **BHP Group Limited Presents at BofA Securities Global Metals, Mining & Steel Conference 2023, May-16-2023 09:00 AM** · external
- [13] **BHP Group Limited - Special Call** · external

