(Bloomberg) — Vast heaps of crushed brown rock hem the Indian Ocean at Western Australia’s Parker Point port — each a stockpile of 200,000 tons of iron ore, ready to be poured into a procession of bulk carriers bound for Asia’s steel mills.

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Rio Tinto Group, the world’s largest iron ore producer, shipped its first cargo of the steelmaking ingredient from this spot in 1966, at the dawn of a boom that minted billionaires and lifted the Australian economy, generating A$1.3 trillion ($820 billion) in earnings in the past two decades alone. Last year, iron ore shipments accounted for about 5% of the country’s gross domestic product.

But now China is cooling, while steel producers are under pressure to clean up a sector that accounts for at least 7% of global greenhouse gas emissions, a change that will require new methods and higher-quality raw materials. Much of the dry, dusty Pilbara region’s gargantuan resource base may no longer make the grade.

Rio, BHP Group Ltd. and Fortescue Metals Group Ltd. produce almost two-thirds of the world’s seaborne iron ore from Western Australia, and margins remain enviable. For the first time in a generation, though, the specter of disruption looms over mining’s most reliable profit generator.

“Australia’s ore industry is now at the start of a long-term structural decline,” said Tom Price, a London-based analyst at Liberum Capital Ltd. “It’s a fundamental shift that will resonate across the Australian economy.”

The first, and most urgent, question is China, which accounts for about 85% of Australia’s export earnings from iron ore.

Demand for steel in the second-biggest economy has plateaued and production is on track to peak before the end of the decade, dented by a years-long crisis in China’s property sector, which has typically consumed more than a third of the country’s steel output. While there’s some growth in smaller segments like manufacturing of electric cars and air conditioners, the economy is no longer building at breakneck speed, meaning the nation’s iron ore imports are forecast to decline. Impact is inevitable, even if other emerging nations make up for some of China’s lost appetite.

Still, the more intractable long-term challenge for the Pilbara’s giants may well be a green one.

At least 70% of steel is produced today using a process that’s been deployed in much the same way since the 14th century: metallurgical coal is heated to create coke, which is then used in a blast furnace to melt iron ore at temperatures of more than 1800C.

It’s an energy-intensive activity and one that produces about two tons of carbon dioxide for each ton of liquid steel, according to Rio.

Global demand for steel is still rising, and will climb by as much as a quarter through 2050, as India and developing economies across Asia industrialize — but investor, consumer and climate pressure on one of the dirtiest corners of industry is growing. Governments are acting too, with policies like the European Union’s carbon border adjustment mechanism, that penalizes carbon-heavy imports.

Read more: What It Would Take to Make Steelmaking Greener: QuickTake

The trouble for big diggers is that there are few attractive alternatives. Existing lower-emissions options include the use of electric arc furnaces — a method that doesn’t require coal and uses recycled steel scrap in place of iron ore. A shaft furnace route, deployed in about 5% of steel production, needs high grade pellets with low levels of impurities.

Among the most favored prospective solutions is to combine a renewables-powered electric furnace with direct reduced iron, a material produced by deploying natural gas to remove oxygen from premium ores. Eventually replacing the gas with green hydrogen — created using solar or wind energy — could dramatically cut steel emissions.

But Australia’s typical iron ore has a grade of between 56% and 62%, making it largely unsuitable for DRI production — or only with additional processing that could add as much as 25% to costs, according to Wood Mackenzie Ltd.

“The premium for higher grade material is going to increase significantly,” said David Cataford, chief executive officer of Champion Iron Ltd., a competitor to Australian producers which supplies higher-grade iron ore from Canada. “If you’re producing lower grade, we do feel it’s going to be more complicated in the medium-term.”

The biggest miners say they already produce the better stuff. Vale SA, which ships higher-quality raw material from Brazil and expects to command a green premium in future, is among those eager to forecast a world that favors richer ores. But higher-grade production — with an iron content of 66% or more — currently makes up only about 3% of global supply, so the race is on to crank up output from projects like the expansive (and expensive) Simandou development in Guinea, in which Rio is an investor.

“There’s an obvious shortage if demand ramps up during the course of decarbonization,” said Liu Yinghao, technical director at the low carbon metallurgy innovation center of China Baowu Steel Group Corp., one of the world’s top steelmakers.

The shortfall in higher grade iron ore could be as much as 200 million tons a year by 2050, Wood Mackenzie estimated in a report this month — a volume roughly equivalent to about a fifth of China’s current annual imports.

To plug the gap and hold on to their position in the market, Australia’s iron ore producers are experimenting with everything from microbes to straw, in a series of trials aimed at making their materials suitable for greener steelmaking. BHP is studying use of carbon capture technology at conventional steel mills and has a pilot with Hatch Ltd. to build an electric smelting furnace — a method that adds an additional process step and holds potential to utilize lower-grade raw material.

“If we can crack the code on the Pilbara ores, that is potentially a game changer,” Tania Archibald, chief executive for Australian steel products at BlueScope Steel Ltd. — among 40 entities collaborating with Rio — told an investor day last month.

Billionaire Andrew Forrest’s Fortescue, meanwhile, has begun production of small volumes of high-quality magnetite ore at its Iron Bridge project in the Pilbara, and has tested a coal-free electrolysis method to convert ore to green iron.

Forrest sees potential to go further than that intermediate step, and to use Australia’s advantages in renewable energy for a low-carbon revival of a domestic steelmaking sector that saw output peak a quarter of a century ago.

“Australia has got everything going for it to make its own steel,” Forrest said earlier this month in Perth, citing the country’s solar and wind resources, and potential to produce green hydrogen. “The policies right now channel against doing that — and encourage offshore production.”

Steelmakers are positioning for that shift, including South Korean giant Posco, which aims to develop new industrial facilities in Port Hedland, the Pilbara’s export hub.

Few changes come fast in mining. Australia’s iron ore incumbents say they have sufficient time to make the technology breakthroughs or strategy shifts they need to continue to prosper.

“The transition away from coal-based steel making is a reality, but it will take some time and there remain significant uncertainties,” said Simon Farry, Rio’s head of steel decarbonization.

After all, traditional blast furnaces in Asia are relatively new — on average about 12 years old in China, compared to more than 40 years across the mostly wealthy nations in the Organisation for Economic Co-operation and Development — and will operate for decades more, according to BHP’s Chief Economist Huw McKay. “The age of capital stocks is a critical factor in assessing the energy transition,” he told Bloomberg Television in an Oct. 24 interview. India will likely to prioritize the need for affordable steel from existing processes, he said.

But several markets are already adapting quickly, including Japan, South Korea, and — to a more limited extent — China, as Vale said in a written response to questions. Iron ore’s No. 2 supplier is adding output tailored to direct reduction in Brazil, and developing hubs in locations including Saudi Arabia, the United Arab Emirates and Oman to produce materials from as soon as 2027 for future green steelmaking.

Australia’s mining industry has been caught out before by the pace of change. Back in the early 2000s, it struggled to keep up with China’s accelerating iron ore consumption. Now, the risk is repeating the error at the other end of the economic and green cycle.

“The world is going to decarbonize,” Vale said. “If we don’t act quickly, we could miss this opportunity.”

–With assistance from Yee Xing Ng "Liz", Jacob Lorinc, Mariana Durao, Thomas Biesheuvel and James McIntyre.

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(Bloomberg) — Australia’s accelerating shift from coal-fired power to clean energy is stoking volatility in its power markets and raising concerns for large businesses, according to BHP Group Ltd., the country’s most valuable company.

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The main National Electricity Market, which covers about 80% of Australia’s demand, is experiencing the largest fluctuations in daily electricity prices globally, driven by issues including unplanned outages of coal plants and the integration of rooftop solar, according to Rystad Energy.

“It’s a nervous time to be a major consumer of electricity on that particular grid,” Huw McKay, BHP chief economist, said Tuesday in an interview with Bloomberg Television.

Following its acquisition of OZ Minerals Ltd., BHP is seeking to lift copper output from mines in South Australia, and wary over the unpredictability in the state’s energy system as work continues on constructing an interconnector linking the region to neighboring New South Wales, according to McKay. “We are anticipating a period of heightened volatility,” he said.

Read More: BHP Sees Squeeze for Global Copper Markets Later This Decade

South Australia had the country’s highest wholesale electricity prices in the three months to Sept. 30, averaging A$92 ($58) per megawatt hour compared to a national figure of A$63 per megawatt hour, according to the Australian Energy Market Operator.

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Teck Resources Limited TECK recently announced that its third-quarter 2023 steelmaking coal sales volumes have been impacted by the slower-than-expected supply-chain recovery following the wildfires in British Columbia, labor disruption at ports, and plant challenges.

Steelmaking coal sales volumes were 5.2 million tons in the third quarter compared with 5.6 million reported in the year-ago quarter. It also came in lower than the sales volume of 6.2 million tons in the second quarter of 2023. Volumes also fell short of the company’s guidance of 5.6 to 6.0 million tons for the quarter.

During its second-quarter conference call, Teck Resources had provided the guidance factoring in lower inventories at the end of the second quarter and planned maintenance shutdown activities at two of its operations during the third quarter.

The company had also stated that labor disruption at ports could impact its sales volumes in the third quarter. Teck Resources had thus anticipated a rise in transportation costs as it utilized its additional port capacity to deliver on customer commitments. The company, however, maintained its transportation cost guidance at 45-48 CAD per ton for the steelmaking coal segment in 2023.  Teck Resources reported average realized steelmaking coal price of $229 per ton in the third quarter of 2023. This was lower than the steelmaking coal prices of $304 per ton in the third quarter of 2022 and $264 per ton in the second quarter of 2023. TECK expects to report provisional pricing adjustments of $23 million in its third-quarter results, which are scheduled to be reported on Oct 24, 2023.

In the second quarter of 2023, the segment reported sales of CAD$2.25 billion ($1.68 billion), reflecting a year-over-year slump of 39% due to the significant decline in steelmaking coal prices from the all-time highs in the same period last year. The segment reported a gross profit of CAD$1,100 million ($821 million) in the second quarter, which was down 57% from the second quarter of 2022.We expect the steelmaking coal segment’s sales to be around CAD $1.63 billion ($1.21 billion) in the third quarter of 2023. Compared with the sales of CAD $2.27 billion, the figure indicates a year-over-year drop of 28%.Teck Resources had earlier stated it is actively engaged in the divestment of the steelmaking coal business and is engaging with a number of potential suitors. The business is garnering interest due to its significant high-quality steelmaking coal reserves and stable demand outlook.Teck confirmed in June that it is engaging with Glencore GLNCY about their proposal regarding the steelmaking coal business. Glencore has offered about $8.2 billion to buy the business.In case this business is sold, TECK will be able to focus solely on the metals needed for the energy transition, such as copper and zinc. Teck Resources and other mining companies like BHP Group BHP and Rio Tinto plc RIO, among others, are trying to capitalize on the growing demand for copper, driven by electric vehicles, renewable energy and infrastructure investments.BHP has created a new copper province in South Australia following the acquisition of OZ Minerals in May 2023. The company is investing strategically in new ideas, technologies and countries through exploration and early-stage copper and nickel prospects to capture growth opportunities.Rio Tinto, in August 2023, had announced that it has formed a joint venture to develop the La Granja copper project in Peru. It is one of the largest undeveloped copper deposits in the world and will augment Rio Tinto’s copper portfolio.The company is also developing the Oyu Tolgoi project in the South Gobi region of Mongolia. It is one of the largest known copper and gold deposits in the world. When the underground mine is complete, it will be the fourth-largest copper mine in the world.

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For Immediate Release

Chicago, IL – October 20, 2023 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Visa Inc. V, AbbVie Inc. ABBV, BHP Group Ltd. BHP, Caterpillar Inc. CAT and Boston Scientific Corp. BSX.

Here are highlights from Thursday’s Analyst Blog:Top Research Reports for Visa, AbbVie and BHP

The Zacks Research Daily presents the best research output of our analyst team. Today's Research Daily features new research reports on 16 major stocks, including Visa Inc., AbbVie Inc. and BHP Group Ltd. These research reports have been hand-picked from the roughly 70 reports published by our analyst team today.You can see all of today’s research reports here >>>Visa shares have outperformed the Zacks Financial Transaction Services industry over the past year (+27.9% vs. +21.7%). The company’s numerous buyouts and alliances paved the way for long-term growth and consistently drove its revenues.Constant investments in technology are solidifying its position in the payments market. A shift in payments to the digital mode is a boon for Visa. The company's steady domestic volumes and transactions rise will aid its overall performance. A strong cash position enables it to boost shareholder value.However, high operating expenses stress its margins. Ramped-up client incentives will dent the top line. Its volumes are likely to see diminishing effects of the Russia-Ukraine conflict. As such, this stock warrants a cautious stance.(You can read the full research report on Visa here >>>)Shares of AbbVie have gained +8.7% over the past year against the Zacks Large Cap Pharmaceuticals industry’s gain of +27.8%. The company has several new drugs in its portfolio that have the potential to drive the top line to make up for lost Humira revenues. Skyrizi and Rinvoq have established outstanding launch trajectories bolstered by the approval in new indications.It has several early/mid-stage candidates that have blockbuster potential. However, there are concerns about long-term sales growth since Humira generics have entered the U.S. market. Increasing competition from newer therapies is hurting Imbruvica’s sales.Slowing consumer demand due to economic pressure is hurting the aesthetics franchise’s sales. Nonetheless, though revenues are expected to decline in 2023, AbbVie expects to return to robust sales growth in 2025. Estimate movements have been mixed ahead of Q3 results. ABBV reported impressive earnings surprise in recent quarters.(You can read the full research report on AbbVie here >>>)Shares of BHP have gained +25.4% over the past year against the Zacks Mining – Miscellaneous industry’s gain of +26.7%. Iron ore prices had earlier lost steam on weak demand in China. Hopes of a pickup in demand in China, owing to a fresh round of stimulus measures for new infrastructure projects, helped lift up prices lately.Going forward, iron ore prices will be supported by demand in the automotive sector, infrastructure and housing market. Copper and nickel prices will be fueled by demand for electric vehicles.BHP’s investment in projects with a focus on future–facing commodities like copper, nickel and potash will aid growth. Efforts to make operations more efficient through technology will drive earnings.(You can read the full research report on BHP here >>>)Other noteworthy reports we are featuring today include Caterpillar Inc. and Boston Scientific Corp.

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BHP Group and Japan’s Mitsubishi have agreed to sell two jointly owned steelmaking coal mines in Australia to Whitehaven Coal for up to $4.1 billion in cash. It’s a deal that shows there are still buyers for coal assets, despite worries over their carbon emissions. Higher-quality metallurgical coal is in demand for operations looking to reduce emissions.

(Bloomberg) — BHP Group Ltd. said it agreed to sell two Australian coking coal operations to Whitehaven Coal Ltd. as the world’s biggest miner extends its withdrawal from fossil fuels.

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Whitehaven has been selected as the preferred bidder in the divestment process, BHP said in its quarterly production report released Wednesday. Spokespeople for the companies declined to offer further details on the size of the sale.

Read More: BHP’s Iron Ore Output Falls 4% as It Confirms Coal Mine Sale

BHP co-owns the mines, which supply metallurgical coal to steelmakers in markets including China and India, in a 50:50 joint venture with Mitsubishi Corp., and its stakes are worth about $4.2 billion, according to Liberum Capital Ltd. The bidding process for the two mines drew competition from rivals including Indonesia-based mining contractor Bukit Makmur Mandiri Utama PT, Stanmore Resources Ltd. and Peabody Energy Corp.

Since 2021, BHP has announced sales of coal, oil and gas assets in locations including Australia, the US and Colombia under Chief Executive Officer Mike Henry’s strategy to refocus the producer’s portfolio on materials tied to growth in renewable energy, electric vehicles and agriculture. The Melbourne-based company this year completed its biggest deal in more than a decade to add OZ Minerals Ltd. and boost volumes of copper, a key transition metal.

Henry has also focused on shedding costlier mines and argues BHP should only retain its highest-quality metallurgical coal operations which can potentially help customers limit some emissions in the steelmaking process. Royalties on output imposed by Queensland’s government mean the coal mines are unlikely to win major investment in the future, he previously said.

BHP will be the No. 3 supplier of the material after completing the sales and could seek to exit its stakes in remaining assets, Liberum Capital said in a Sept. 20 note.

Read more: BHP Plans to Keep Remaining Coal After Completing Mine Sales

The producer has no current plans to consider sales of other Queensland coking coal operations, Chief Development Officer Johan van Jaarsveld said Oct. 5 in Melbourne.

Shares of BHP rose as much as 0.5% in Sydney on Wednesday, before trading little changed at A$45.59 apiece as at 10:31 a.m. local time. Whitehaven’s shares were halted from trading.

The sale announcement comes as BHP said iron ore production from Western Australia fell 4% in the three months to Sept. 30 from the year-before period. Still, it reaffirmed its total output forecast of the steelmaking material for the full-year that started July 1 at between 282 million to 294 million tons. It also said copper output rose 11% in its first quarter, while metallurgical coal fell 16%.

BHP and closest rival Rio Tinto Group are among the top commodity exporters being closely watched for insight on the economic slowdown in China that’s causing ripple effects across the global economy. The biggest metals-consuming nation’s disappointing post-pandemic recovery and persistent property woes have put downward pressure on steel demand and iron ore prices this year.

(Updates with details of quarterly production output in eighth, ninth paragraphs)

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Key Insights

• BHP Group's estimated fair value is AU$60.35 based on 2 Stage Free Cash Flow to Equity

• BHP Group's AU$44.25 share price signals that it might be 27% undervalued

• The US$45.30 analyst price target for BHP is 25% less than our estimate of fair value

In this article we are going to estimate the intrinsic value of BHP Group Limited (ASX:BHP) by projecting its future cash flows and then discounting them to today's value. Our analysis will employ the Discounted Cash Flow (DCF) model. Believe it or not, it's not too difficult to follow, as you'll see from our example!

Companies can be valued in a lot of ways, so we would point out that a DCF is not perfect for every situation. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model.

See our latest analysis for BHP Group

What's The Estimated Valuation?

We're using the 2-stage growth model, which simply means we take in account two stages of company's growth. In the initial period the company may have a higher growth rate and the second stage is usually assumed to have a stable growth rate. To begin with, we have to get estimates of the next ten years of cash flows. Where possible we use analyst estimates, but when these aren't available we extrapolate the previous free cash flow (FCF) from the last estimate or reported value. We assume companies with shrinking free cash flow will slow their rate of shrinkage, and that companies with growing free cash flow will see their growth rate slow, over this period. We do this to reflect that growth tends to slow more in the early years than it does in later years.

Generally we assume that a dollar today is more valuable than a dollar in the future, so we discount the value of these future cash flows to their estimated value in today's dollars:

10-year free cash flow (FCF) forecast

	2024	2025	2026	2027	2028	2029	2030	2031	2032	2033
Levered FCF ($, Millions)	US$9.77b	US$10.1b	US$9.87b	US$13.0b	US$13.3b	US$13.5b	US$13.8b	US$14.1b	US$14.4b	US$14.7b
Growth Rate Estimate Source	Analyst x11	Analyst x11	Analyst x9	Analyst x2	Analyst x2	Est @ 2.03%	Est @ 2.03%	Est @ 2.02%	Est @ 2.02%	Est @ 2.02%
Present Value ($, Millions) Discounted @ 8.0%	US$9.0k	US$8.7k	US$7.8k	US$9.5k	US$9.0k	US$8.5k	US$8.0k	US$7.6k	US$7.2k	US$6.8k

("Est" = FCF growth rate estimated by Simply Wall St)Present Value of 10-year Cash Flow (PVCF) = US$82b

We now need to calculate the Terminal Value, which accounts for all the future cash flows after this ten year period. For a number of reasons a very conservative growth rate is used that cannot exceed that of a country's GDP growth. In this case we have used the 5-year average of the 10-year government bond yield (2.0%) to estimate future growth. In the same way as with the 10-year 'growth' period, we discount future cash flows to today's value, using a cost of equity of 8.0%.

Terminal Value (TV)= FCF2033 × (1 + g) ÷ (r – g) = US$15b× (1 + 2.0%) ÷ (8.0%– 2.0%) = US$249b

Present Value of Terminal Value (PVTV)= TV / (1 + r)10= US$249b÷ ( 1 + 8.0%)10= US$115b

The total value, or equity value, is then the sum of the present value of the future cash flows, which in this case is US$197b. The last step is to then divide the equity value by the number of shares outstanding. Compared to the current share price of AU$44.3, the company appears a touch undervalued at a 27% discount to where the stock price trades currently. Valuations are imprecise instruments though, rather like a telescope – move a few degrees and end up in a different galaxy. Do keep this in mind.

Important Assumptions

We would point out that the most important inputs to a discounted cash flow are the discount rate and of course the actual cash flows. You don't have to agree with these inputs, I recommend redoing the calculations yourself and playing with them. The DCF also does not consider the possible cyclicality of an industry, or a company's future capital requirements, so it does not give a full picture of a company's potential performance. Given that we are looking at BHP Group as potential shareholders, the cost of equity is used as the discount rate, rather than the cost of capital (or weighted average cost of capital, WACC) which accounts for debt. In this calculation we've used 8.0%, which is based on a levered beta of 1.202. Beta is a measure of a stock's volatility, compared to the market as a whole. We get our beta from the industry average beta of globally comparable companies, with an imposed limit between 0.8 and 2.0, which is a reasonable range for a stable business.

SWOT Analysis for BHP Group

Strength

• Debt is not viewed as a risk.

• Dividends are covered by earnings and cash flows.

Weakness

• Earnings declined over the past year.

• Dividend is low compared to the top 25% of dividend payers in the Metals and Mining market.

Opportunity

• Good value based on P/E ratio and estimated fair value.

Threat

• Annual earnings are forecast to decline for the next 3 years.

Moving On:

Whilst important, the DCF calculation ideally won't be the sole piece of analysis you scrutinize for a company. The DCF model is not a perfect stock valuation tool. Instead the best use for a DCF model is to test certain assumptions and theories to see if they would lead to the company being undervalued or overvalued. If a company grows at a different rate, or if its cost of equity or risk free rate changes sharply, the output can look very different. Why is the intrinsic value higher than the current share price? For BHP Group, there are three pertinent elements you should further research:

Risks: For example, we've discovered 2 warning signs for BHP Group (1 is concerning!) that you should be aware of before investing here.

Future Earnings: How does BHP's growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart.

Other High Quality Alternatives: Do you like a good all-rounder? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!

PS. Simply Wall St updates its DCF calculation for every Australian stock every day, so if you want to find the intrinsic value of any other stock just search here.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

The Australian Securities Exchange (ASX) experienced a broad decline on Tuesday, with the energy sector being the only one to close higher. Local shares fell by almost half a percent as gains in energy were offset by losses across other sectors. The Reserve Bank of Australia's (RBA) September minutes, released on the same day, revealed that board members decided to hold rates steady at the September meeting due to significant increases in interest rates over a short period.

Energy stocks rallied as crude prices continued their upward trend for the third consecutive week, with Brent trading at US$94.80. Chevron (NYSE:CVX)'s Mike Wirth anticipates it reaching $US100 a barrel soon. "Supply is tightening, inventories are drawing … the trends would suggest, we are certainly on our way, we are getting close to $100 a barrel,” Wirth said in an interview on Monday.

Coal stocks also saw an increase after New Hope (OTC:NHPEF) (ASX:NHC), a sector leader, reported an "exceptional" performance across its businesses resulting in a full-year profit of A$1.09 billion. The company also noted that its New Acland stage 3 operations began in May and produced its first coal earlier this month.

Gold stocks surged as bullion prices hit a two-week high due to the easing US dollar ahead of the two-day Federal Reserve meeting starting later on Tuesday. Among these, Newcrest Mining (OTC:NCMGF) (ASX:NCM) advanced after receiving approval from Australia's Foreign Investment Review Board (FIRB) for Colorado-based giant Newmont's planned acquisition.

However, some stocks didn't fare as well. Lithium stocks Pilbara Minerals (ASX:PLS) and Allkem (ASX:AKE), along with payments stock Block Inc (ASX:SQ2), each saw losses of 4%.

Elsewhere in Asia, stocks mainly dropped due to concerns that the Federal Reserve and Bank of England would hike rates this week. The S&P/ASX 200 index fell 0.5% to 7,197 after a 0.7% drop the day before. Heavyweight mining stocks slid, with BHP down 1.4% and Rio Tinto (NYSE:RIO) slipping 0.65%; iron ore futures extended declines on China's higher domestic supply and demand concerns.

In other company news, Orica (ASX:ORI) announced accelerated climate change targets, including a goal to reduce net operational Scope 1 and 2 emissions by at least 45% by 2030, up from its previous target of 40%. The company also aims to reduce Scope 3 emissions by 25% by 2035, from 2022 baseline levels.

Meanwhile, logistics group Qube Holdings (ASX:QUB) saw a decline after disclosing a fatal accident involving an employee at its forestry harvesting operations in the Fleurieu Peninsula on Monday. The company is now working with South Australian Police, SafeWork SA, and other relevant authorities investigating the incident.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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The Australian shares were set to open lower today, while the U.S. stocks remained largely unchanged with a heightened focus on the outlook for interest rates. ASX futures dipped by 21 points or 0.3% to 7214 around 7 am AEST. On Wall Street, the Dow Jones Industrial Average, S&P 500, and Nasdaq saw minor changes of +0.02%, +0.07%, and +0.01% respectively.

In New York, BHP fell by 0.3%, Rio Tinto (NYSE:RIO) by 0.9%, while Atlassian (NASDAQ:TEAM) gained by 0.9%. Tesla (NASDAQ:TSLA) shares dropped by 3.3% while Apple (NASDAQ:AAPL)'s shares rose by 1.7% on the back of strong iPhone 15 pre-orders. Amazon (NASDAQ:AMZN) saw a slight dip of 0.3%. The local currency modestly appreciated while the Bloomberg dollar spot index slightly declined.

On the cryptocurrency front, Bitcoin was up by 1.2% to $26,785 at 7.15 am AEST on bitstamp.net after briefly surpassing the $27,000 mark. The yield on the U.S. 10-year note was down by three basis points to 4.30% at 4.59 pm in New York.

The Federal Reserve is expected to maintain rates at 5.25% to 5.5% during its meeting on Wednesday, with nearly a 70% likelihood for another pause in November according to the CME FedWatch Tool.

JPMorgan strategists noted a clear distinction between European rate hikes and an anticipated pause from the Federal Reserve that aligns with earlier decisions made by Bank of Canada and Reserve Bank of Australia. They highlighted a common message across central banks guiding towards a 'high for long' pause.

In other news, Morgan Stanley suggested a portfolio of defensive growth is suitable for a "late cycle" trading market. Russell 'Rusty' Delroy, founder and investment manager of boutique Cottesloe firm Nero Resources Fund, expressed confidence in the oil and gas sector, citing a severe misalignment between company valuations, investor sentiment, and actual supply-demand metrics. He sees value in oil and gas majors like BP (LON:NYSE:BP), which he believes will remain relevant for a long time.

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(Bloomberg) — Private credit funds are considering jumbo loans to help finance bids for coal mines that BHP Group Ltd. is seeking to offload in Australia, people familiar with the matter said.

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The funds are in talks to potentially underwrite financing of $2 billion to $3 billion for competing bids from Indonesian mining contractor Bukit Makmur Mandiri Utama Pt (Buma) and Australian coal producer Stanmore Resources Ltd., according to the people, who asked not to be identified speaking about private matters.

The mines are called Daunia and Blackwater in the northeastern state of Queensland. Buma and Stanmore have made initial bids for at least one of them, the people said. A deal for both mines could be valued at about $5 billion, and the remainder of the financing could be arranged by banks, the people added.

Demand for private credit in Asia and globally has been picking up lately, as the $1.5 trillion market worldwide steps in to help finance deals where banks have often pulled back. In the second quarter globally, 34 new funds raised $71.2 billion, more than double the previous three months, according to data from research firm Preqin. In Asia, where the asset class is still growing from a lower base, firms raised $1.4 billion, up from $180 million in the first quarter.

BHP announced its divestment plan in February for Daunia and Blackwater, which it co-owns with Mitsubishi Corp.

Both Buma and Stanmore have made it through to the next round of bidding, the people said. Whitehaven Coal Ltd. is also still in the running for the mines among others, according to the people.

Stanmore is no stranger to private credit. In November 2021, it tapped $625 million from private credit funds managed by Varde Partners, Canyon Capital Advisors, Farallon Capital Asia Pte, and other credit funds to partially fund its acquisition of BHP’s 80% stake in a coal operation joint venture with Mitsui & Co. in Bowen Basin, Queensland.

The other bidder Buma is already a contractor at the coal mine Blackwater, under a A$540 million contract.

Stanmore, Buma, and Whitehaven declined to comment. BHP didn’t respond to a request for comment on the auction timeline and who made it to the next round of bidding.

–With assistance from James Fernyhough, Rob Verdonck and Davide Scigliuzzo.

(Retops and adds context throughout)

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By Tom Westbrook and Dhara Ranasinghe

SINGAPORE/LONDON (Reuters) – Investors looking for clues about the state of China's economy beyond official data are seeing red warnings flash across a range of informal gauges, prompting many to back out of global assets exposed to the slowdown.

The selling is sucking the wind out of stock markets from London to Bangkok and weighing on China proxies from the Australian dollar to New Zealand dairy prices and shares from luxury goods giant LVMH to miner BHP and casino Las Vegas Sands.

As the post-pandemic period has failed to bring a sustained recovery in consumer spending, or to thaw the near-frozen property market, most analysts now figure the world's second-largest economy is going to miss its 5% growth target this year.

Beneath the headlines, investors are even gloomier with higher-frequency and more arcane data from a shrinking current account surplus to ballooning deposits and soft surveys pointing to a deep-seated confidence problem.

"It's pretty weak," said Sat Duhra, a portfolio manager at Janus Henderson who devises a macro score for countries by tracking seven factors including PMI surveys, real exchange rates, current accounts, growth estimates and liquidity.

"PMIs have been weak, GDP is being revised downward. It's a tricky situation," he said. "And I don't see any point, at this point, in taking a bullish view on China when all of these things are going on."

His fund invests in China, but away from economically sensitive sectors such as banks, property or industrials.

Beyond China, which is the largest trading partner of most of its neighbours and other big economies, souring demand is beginning to take a toll.

New Zealand's Fonterra, the world's biggest dairy exporter, has cut its farm gate milk price forecast twice in a month citing "reduced demand from key importing regions." It previously noted that the largest slowdown was in China.

Last week BHP Group posted its weakest annual profit in three years and manganese-focused spinoff South32 said profit fell by nearly two thirds. New Zealand's a2 Milk Co warned of weak growth in China's infant formula market.

Shares of BHP, S32 and a2 fell.

Seema Shah, chief global strategist at Principal Global Investors in London, sees the slowdown biting in Europe, where investors tend to connect the fortunes of German manufacturers with the those of their Chinese customers.

"We have become a bit more gloomy on Europe," she said, noting China also poses a risk to U.S. equities.

RETREAT

This year's run of bad indicators has wrong-footed investors, who had been positioning for companies such as BHP and currencies such as the Australian dollar and Thai baht to rally as China emerged from the COVID-19 pandemic in a blaze of spending.

Instead, Chinese visitors to top destination Thailand, for example, are barely a third of pre-pandemic levels, the baht is stalled and in Asia only Hong Kong's Hang Seng has fallen further than Thai stocks' 6.5% drop.

Even in Japan, the stock market success story of the year so far, portfolio manager Zuhair Khan at UBP Investments says he's shorting or avoiding companies reliant on China sales.

The scale of the problem, with data showing consumer and producer prices falling and youth unemployment running over 20%, indicates an aggressive policy response is needed, and quickly, he said, something that is so far yet to arrive.

To be sure, although they too have lately retreated, stocks of companies such as casino-operator Las Vegas Sands and luxury-goods seller LVMH are up 11% and 16%, respectively, this year, against a 10% gain for world stocks, and some investors remain bullish.

"We expect group travel to resume in late 2023 and support Chinese spend on luxury goods globally," said Prashant Bhayani, Asia chief investment officer at BNP Paribas Wealth Management.

But it's now a waiting game for valuations to reflect more realistic assumptions.

"The China reopening as a thematic has played out to some extent. However, I think more importantly, it has fallen short of initial expectations," said Jagdeep Ghuman, a portfolio manager for U.S. asset manager Nuveen.

"It’s (now) very much on a case by case basis, driven by valuations. Overall we have seen that reset of expectations play out in the market and so there has been volatility in the shares of these companies."

(Reporting by Tom Westbrook and Rae Wee in Singapore, Dhara Ranasinghe in London and Summer Zhen and Xie Yu in Hong Kong. Editing by Sam Holmes)

Key Insights

• Institutions' substantial holdings in BHP Group implies that they have significant influence over the company's share price

• 45% of the business is held by the top 25 shareholders

• Ownership research along with analyst forecasts data help provide a good understanding of opportunities in a stock

A look at the shareholders of BHP Group Limited (ASX:BHP) can tell us which group is most powerful. With 49% stake, institutions possess the maximum shares in the company. That is, the group stands to benefit the most if the stock rises (or lose the most if there is a downturn).

Given the vast amount of money and research capacities at their disposal, institutional ownership tends to carry a lot of weight, especially with individual investors. As a result, a sizeable amount of institutional money invested in a firm is generally viewed as a positive attribute.

Let's take a closer look to see what the different types of shareholders can tell us about BHP Group.

See our latest analysis for BHP Group

ownership-breakdownWhat Does The Institutional Ownership Tell Us About BHP Group?

Institutions typically measure themselves against a benchmark when reporting to their own investors, so they often become more enthusiastic about a stock once it's included in a major index. We would expect most companies to have some institutions on the register, especially if they are growing.

As you can see, institutional investors have a fair amount of stake in BHP Group. This implies the analysts working for those institutions have looked at the stock and they like it. But just like anyone else, they could be wrong. If multiple institutions change their view on a stock at the same time, you could see the share price drop fast. It's therefore worth looking at BHP Group's earnings history below. Of course, the future is what really matters.

earnings-and-revenue-growth

BHP Group is not owned by hedge funds. BlackRock, Inc. is currently the company's largest shareholder with 7.1% of shares outstanding. The second and third largest shareholders are State Street Global Advisors, Inc. and The Vanguard Group, Inc., with an equal amount of shares to their name at 5.1%.

Our studies suggest that the top 25 shareholders collectively control less than half of the company's shares, meaning that the company's shares are widely disseminated and there is no dominant shareholder.

Researching institutional ownership is a good way to gauge and filter a stock's expected performance. The same can be achieved by studying analyst sentiments. There are a reasonable number of analysts covering the stock, so it might be useful to find out their aggregate view on the future.

Insider Ownership Of BHP Group

While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. The company management answer to the board and the latter should represent the interests of shareholders. Notably, sometimes top-level managers are on the board themselves.

Most consider insider ownership a positive because it can indicate the board is well aligned with other shareholders. However, on some occasions too much power is concentrated within this group.

Our most recent data indicates that insiders own less than 1% of BHP Group Limited. As it is a large company, we'd only expect insiders to own a small percentage of it. But it's worth noting that they own AU$60m worth of shares. In this sort of situation, it can be more interesting to see if those insiders have been buying or selling.

General Public Ownership

The general public– including retail investors — own 47% stake in the company, and hence can't easily be ignored. This size of ownership, while considerable, may not be enough to change company policy if the decision is not in sync with other large shareholders.

Next Steps:

I find it very interesting to look at who exactly owns a company. But to truly gain insight, we need to consider other information, too. Be aware that BHP Group is showing 2 warning signs in our investment analysis , and 1 of those is concerning…

If you would prefer discover what analysts are predicting in terms of future growth, do not miss this free report on analyst forecasts.

NB: Figures in this article are calculated using data from the last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. This may not be consistent with full year annual report figures.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

(Bloomberg) — BHP Group Ltd., the world’s biggest miner, missed analysts’ forecasts as its full-year profit slumped, with China’s struggling economy weighing on demand for iron ore and other commodities.

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Twelve months after posting its highest-ever profit as prices soared, the deteriorating economic outlook in the world’s biggest metals consumer has seen BHP’s earnings from iron ore, copper, coal and nickel recording double-digit percentage declines. Inflation, particularly in labor costs, also put pressure on profits, the company said Tuesday.

BHP’s plunging earnings mirror those posted by iron ore rival Rio Tinto Group last month, with miners holding their breath for an upswing in China’s economy since Beijing abandoned “Covid Zero” restrictions last November.

A slew of recent data suggest steel and iron ore demand could contract for the rest of the year, with the Chinese property market still in a trough, and authorities are unwilling to encourage massive building despite the slowdown reflected in July’s industrial output.

Read More: Solving China’s Steel Demand Mystery: Energy Daily

China’s near-term outlook was “contingent on the effectiveness of recent policy measures,” Chief Executive Officer Mike Henry said in a statement Tuesday, adding he expected “buoyant growth in India with strong construction activity underpinning an expansion in steelmaking capacity.”

BHP’s underlying attributable profit from continuing operations fell to $13.4 billion in the 12 months to June 2023, the Melbourne-based company said in a regulatory filing. It will pay a final dividend of 80 cents per share, compared with $1.75 the year before.

Still, BHP said it expects China steel production to reach more than 1 billion tons this calendar year, as it did last year. But in the medium term, “China’s demand for iron ore is expected to be lower than it is today as it moves beyond its crude steel production plateau and the scrap-to-steel ratio rises,” it said in the report.

Henry said on a media call Tuesday that he expected China’s economy to “pick up toward the back end of this year.” New-start property development was the biggest drag on steel demand, but “there’s many parts of the Chinese economy that are actually running quite well,” including green technology and the automotive sector.

BHP has put “future facing commodities” copper, nickel and potash at the center of its growth plans, driven by population growth, urbanization and the clean energy transition. Henry said capital expenditure would increase to around $10 billion in the current financial year, up from $7.1 billion last year, as the company invests more in these minerals.

The miner said it’s studying increasing annual iron ore production from its Australian operations to 330 million tons a year, up from 257 million tons now. BHP gave no update on the progress of the sale of two coal mines in Australia’s Queensland state.

(Updates with steel production forecast in seventh paragraph; iron ore expansion plans in ninth)

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(Bloomberg) — There’s a three-way battle underway for the title of the world’s biggest copper producer.

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After buying Australia’s OZ Minerals Ltd., BHP Group is challenging for the mantle at a time when hitherto leader Codelco has seen output slide as it battles to overhaul aging operations in Chile. In fact, the Melbourne-based firm produced more than Codelco last quarter.

“The risk is if Codelco doesn’t pick up production in 2024 and BHP does, then they could overtake the mighty Codelco” in annual terms, said Bloomberg Intelligence analyst Grant Sporre.

Freeport-McMoRan Inc. briefly moved into first spot last year as it ramped up underground mining in Indonesia, although the US firm has seen its share of output fall after handing over half that asset as a condition for signing a new contract. Sporre has Freeport in third in the years ahead, with Codelco just staving off BHP for the crown.

In a presentation Friday, Codelco’s outgoing CEO Andre Sougarret delivered a trajectory that more or less matched Sporre’s forecasts (see chart below). Still, Codelco has been missing targets for years amid project delays that expose it to even lower quality ore.

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(Bloomberg) — BHP Group Ltd., South32 Ltd. and a unit of Seriti Resources Holdings Ltd. may face a class action from coal miners with lung disease in South Africa who worked at the companies’ operations over the last six decades.

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Richard Spoor, a South African lawyer who has won compensation for gold and asbestos miners with lung disease, filed a case with the country’s High Court on Tuesday seeking permission to launch a class action.

The Southern African Bishops Conference initiated the case and will seek relief for miners who have worked at the operations since 1965 and their descendants, Spoor’s legal firm said in a statement.

“Every breath can be a struggle in the life of a coal miner suffering from coal-mine lung disease,” Spoor’s firm said. “Miners far too often walk away with incurable lung diseases that require life-long treatments they cannot afford. Many have tragically lost their lives.”

The case is the latest attempt to win compensation for miners and communities in southern Africa affected by the operations they worked at or lived near at times of laxer environmental standards. The papers were filed on behalf of 17 miners.

Spoor has won compensation for asbestos miners who worked for now-defunct South African mining titan, Gencor Ltd., and gold miners who worked for companies including Anglo American Plc. Anglo is facing a separate suit over alleged lead poisoning near a mine in Zambia.

“South32 can confirm it has been served with an application for certification of a class action on behalf of certain mine workers at coal mines in South Africa,” the company, which ran coal mines in the country between 2015 and 2021, said in a response to queries. “This matter is currently being considered by the business. We are unable to comment further.”

BHP, which spun off South32, said it’s yet to receive the claim and hasn’t held mining interests in South Africa since spinning off South32 in 2015. It may respond once it has assessed the claim, the company said.

Seriti didn’t respond to queries.

Motley Rice LLC will act as a legal consultant to the miners.

(Updates with South32 comment in eighth paragraph)

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Rio Tinto RIO will build the largest solar power plant in Canada’s northern territories at its Diavik Diamond Mine. This move aligns with RIO’s global decarbonization objectives, which include a 15% reduction in Scope 1 & 2 emissions by 2025, and 50% by 2030. The company has made a commitment to reach net-zero emissions by 2050.The plant will feature more than 6,600 solar panels. In addition to direct sunlight, the bi-facial panels will help generate energy from the light that reflects off the snow which covers Diavik for most of the year.The solar power plant, which is expected to be fully operational in the first half of 2024, will add to Diavik’s renewable energy generation, which already features a wind-diesel hybrid power facility with a capacity of 55.4 MW powering the site. The solar plant is expected to generate around 4,200 megawatt-hours of carbon-free electricity annually for the mine. It will provide up to 25% of Diavik’s electricity during closure work, which will continue till 2029.  It will cut diesel consumption at the site by approximately one million liters per year. It will also help lower emissions by 2,900 tons of CO2 equivalent, which is almost same as eliminating the emissions of 630 cars.The Diavik mine, which is fully owned by Rio Tinto, is Canada’s largest diamond producer with an annual production capacity of 3.5 to 4.5 million carats of rough diamonds per annum. The mine started operating in 2003 and produced over 100 million carats of diamonds ever since. Commercial production is expected to end in the first quarter of 2026.In 2022, the company’s Scope 1 and 2 emissions were 30.3Mt CO2e, which was down 2% year over year and marked a reduction of 7% from its 2018 baseline. In the first half of fiscal 2023, RIO’s Scope 1 and 2 emissions were 15.4 Mt CO2e, 1% lower than the last year’s comparable period. The company has spent $95 million on decarbonization projects in the said period.Rio Tinto plans to invest $7.5 billion in capital between 2022 and 2030 to deliver on its decarbonization strategy. The company has made some advancements in its sustainability efforts during the first half of fiscal 2023. Among these, in April 2023, Rio Tinto Iron and Titanium started BlueSmeltingTM demonstration plant at its metallurgical complex in Sorel-Tracy. This is a part of the process to validate the ground-breaking BlueSmeltingTM technology, which aims to decarbonize RTIT's Quebec Operations.  The project is part of a partnership between Rio Tinto and the Government of Canada to invest up to C$737 million ($537 million) over the next eight years to decarbonize the Sorel-Tracy facility and to position the business as a center of excellence in critical minerals processing.In June, Rio Tinto announced that its Boron, CA operation has started operating with a fleet running on renewable diesel. This makes it the first open pit mine in the world to manage this feat. Also, during the month, the company signed a Memorandum of Understanding (MoU) with China Baowu, to explore a range of industry-leading new projects in China and Australia in a bid to decarbonize the steel value chain.

Miners are bringing about radical changes to mining operations with the help of technology and automation to increase productivity and efficiency, reduce costs and improve frontline safety. More importantly, these efforts will help the industry reach its sustainability target by cutting down on carbon emissions, which is the need of the hour considering the severity of climate change.BHP Group BHP recently signed a MoU with Toyota Australia, the Australian subsidiary of the Japanese car manufacturer Toyota TM to enhance safety measures and reduce CO2 emissions at the former’s Australian operations. Toyota’s expertise will aid BHP's progress toward its objective to reduce greenhouse gas emissions by 30% by 2030.To decarbonize its operations, BHP has plans to electrify its fleet of 5000 light vehicles in Australia.Vale S.A VALE has also set target to reduce Scopes 1 and 2 absolute greenhouse gas emissions by 33% by 2030, and achieve net zero Scopes 1 and 2 emissions by 2050. Till 2022, Vale has achieved a reduction of 27% in CO2 emissions, compared with the 2017 base levels.Earlier this year, Vale successfully tested a new type of iron ore briquette, adapted for the direct reduction route. This marks a solid breakthrough as it will aid the steel industry's efforts to achieve emission reduction targets. The new type of briquette emits about 80% less CO2 compared to pellets in its manufacture. The briquette can also be used as a charge for the blast furnace.

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July 31 (Reuters) – The following are the top stories in the Financial Times. Reuters has not verified these stories and does not vouch for their accuracy.

Headlines

– BHP expects Indian steelmaking boom to drive its coal business

– UK's nuclear power ambitions for 2050 lack clear plan, say MPs

– UK government cuts cost of polluting in latest anti-green move

– UK needs to step up engagement with Africa on security, says foreign secretary

Overview

– BHP Group's chief commercial officer Vandita Pant has said the rapid expansion of India's steel industry is expected to boost the miner's coal business significantly.

– The British government's goal to more than triple its nuclear power generation capacity by 2050 lacks of a strategic plan to achieve it, according to a report by lawmakers on the House of Commons science, innovation and technology committee.

– The UK government has made it cheaper to pollute in Britain compared with the European Union, by watering down reforms to the carbon market, including offering more allowances than expected to polluting industries.

– British foreign minister James Cleverly has said that the country needs to increase its engagement with African nations on "genuinely sustainable security measures", acknowledging that some countries have turned to the Wagner group to meet an "unfulfilled need".

(Compiled by Bengaluru newsroom)

(Bloomberg) — BHP Group Ltd. is calling for Australia to lift a longstanding ban on nuclear power as the country moves to decarbonize its electricity system.

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Nuclear “must be part of the conversation” in Australia, Laura Tyler, chief technical officer at the world’s biggest miner, said in an interview on Wednesday.

“To make sure we have that safe, reliable energy mix, we need to be able to mix it up” with nuclear complementing wind, solar, batteries and other sources of electricity, she said. “Everything needs to be on the table.”

The bulk of BHP’s earnings come from its Australian iron ore and coal mines, but the company also produces uranium, the fuel for nuclear reactors, at its Olympic Dam site in South Australia.

After being shunned due to safety concerns, nuclear energy is enjoying a resurgence in global popularity due to a shortage of natural gas following Russia’s invasion of Ukraine. The need to decarbonize electricity grids and the development of smaller and cheaper reactors is also making it more attractive.

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Australia has never had nuclear power and there’s been a prohibition on its use in place since the 1990s. The Labor government supports the ban, arguing the country’s wealth of renewable resources means it’s not needed.

However, the opposition Liberal-National coalition wants it overturned, on the grounds that wind, solar and batteries can’t provide reliable baseload power to replace coal plants that are being phased out.

BHP aims to get to net zero across its operations by 2050, but warned last week that its emissions might rise in the short term.

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(Bloomberg) — Iron ore rallied along with copper after Chinese Premier Li Qiang said that growth has picked up this quarter and more stimulus was in store, boosting the outlook for consumption in the biggest metals importer.

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China will roll out more practical, effective measures to expand domestic demand and stoke market vitality, Premier Li told the World Economic Forum in Tianjin. Iron ore, used to make steel, surged by almost 4%.

In addition, Mike Henry, head of BHP Group Ltd., the world’s largest miner, urged the Chinese government to provide more help for the housing market, acknowledging recent data had been patchy. “We do think there’s room for a little bit more policy that is supportive,” he told reporters in Brisbane.

Industrial metals rallied at the start of the year as China reopened after Covid Zero was ditched, but the upswing stalled this quarter as manufacturing and the property market disappointed. While the central bank cut policy rates this month to aid the economy, investors expect more steps will follow, although it’s unclear if they’ll be enough to significantly revive growth.

“Once again, unbridled expectations of further stimulatory interventions are running rife,” said Atilla Widnell, managing director at Navigate Commodities Pte, “We fully expect intermittent upside price shocks to emanate from overly optimistic China and iron ore bulls, though bears will likely use this as an opportunity to sell.”

Iron ore traded 3.8% higher at $113.15 a ton in Singapore at 2:17 p.m., while steel futures in China also climbed. On the London Metal Exchange, copper gained 0.9% to $8,466 a ton as aluminum, zinc, lead, tin and nickel all rose more than 1%. For nickel, the day’s gain came after it closed on Monday at the lowest level since July 2022.

Copper’s upside potential was also in focus after an especially bullish, long-term forecast from billionaire Robert Friedland, who said that prices could ultimately rally tenfold as the global mining industry struggled to meet accelerating demand given the energy transition.

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(Bloomberg) — BHP Group Ltd. Chief Executive Officer Mike Henry has warned too much government intervention in global critical minerals supply chains could undermine efforts to fight climate change.

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The boss of the world’s biggest mining company said it was “understandable” that nations were scrambling to secure domestic supply of the metals needed in renewable energy and electric vehicles, but warned against an excessively domestic focus and over-reliance on the “sugar hit” of state-provided subsidies.

“Governments striving to secure their own critical mineral supplies must ensure they don’t undermine the outcome the world needs to achieve – where in fact a combination of pragmatic international cooperation and competition can jointly accelerate the energy transition,” Henry said a conference in Brisbane on Tuesday.

Australia Cautious on Chinese Investment in Vital Lithium Sector

Henry’s warning comes as global competition for minerals such as lithium, nickel, cobalt and rare earths continues to heat up as nations and industry rush to meet ambitious emissions reduction goals. China controls a large chunk of supply chains of these minerals, which has worried the US, Europe and other economies.

The US Inflation Reduction Act, legislated last year, set aside almost $400 billion to subsidize clean energy, and the US has set up partnerships with allies, including key miner Australia, to build critical mineral supply chains that exclude China.

While Henry didn’t explicitly criticize these efforts in his speech, he said any moves to mimic the new law in a smaller country like Australia would be “a losing proposition.”

“What governments here – federal and state – should focus on are those things within their control to make investment fundamentally more attractive,” he said.

Meanwhile, Henry also urged the Chinese government to provide more support for the struggling housing market, which is a major driver of steel demand, acknowledging recent economic data from the nation was “a little patchy.”

China Economy Gloom Worsens With Weak Consumer Spending Data

“We do think there’s room for a little bit more policy that is supportive of housing and housing new starts,” he told reporters after the speech. Still, he remained optimistic about the outlook for steel and iron ore demand, saying: “Our expectation remains that the second half will be stronger than the first.”

(Updates with Henry’s China housing comments from penultimate paragraph)

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(Bloomberg) — BHP Group Ltd. is warning its carbon emissions will rise in the short term, with rapid technological advances and industrial collaboration needed if the mining giant is to reach its goal of net zero emissions by 2050.

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The world’s biggest miner is on track to meet its target of a 30% reduction in operational emissions by 2030 at a cost of around $4 billion, it said Wednesday. Still, it expects a “near-term increase in emissions from production growth” from current levels, Graham Winkelman, the group’s head of carbon management, said in an investor briefing.

Carbon reduction technologies “must advance quickly from where it is now” and needs to include collaborations “with our vendors and industry,” BHP said in a presentation. The Melbourne-based company’s path to net zero would be “non-linear,” it added, with emissions rising before falling again by the end of the decade.

What It Would Take to Make Steelmaking Greener: QuickTake

The major iron ore, coal and copper producer plans to reduce its operational (Scope 1 and 2) greenhouse gas emissions by at least 30% on 2020 figures by 2030, and reach net zero in those emissions by 2050. Those targets don’t include “Scope 3” emissions, including those from end-users such as steelmakers and other customers.

The admission of short-term increases in emissions from BHP comes even as its environmental targets remain less ambitious than those of its peers. Rio Tinto Group, which is a bigger emitter, aims to reduce its Scope 1 and 2 emissions by 50% by 2030 from a 2018 baseline, while Fortescue Metals Group Ltd. is aiming to reach net zero by that year.

Around 75% of the $4 billion that BHP plans to spend on decarbonization by 2030 will be spent on replacing diesel use in haul trucks. It favors battery-powered haul trucks over hydrogen power because they are more than twice as efficient, Anna Wiley, the vice president of planning and technical in the company’s Australian minerals division, said on the conference call.

‘Dynamic Charging’

BHP will trial “dynamic charging” at its mines in Western Australia and Chile, allowing trucks to be charged while they are still in operation. It said its unfinished Jansen potash mine in Canada, which is due to start producing the fertilizer ingredient in 2026, would use 80% electric haul trucks from day one.

The company’s Australian iron ore mines are not connected to the grid and are powered by purpose-built gas generators. A switch to electric haul trucks will see power demand surge, and BHP plans to build 500 megawatts of renewables and storage to meet growing demand and decarbonize its electricity emissions, it said. It will also explore options for plugging into to a wider regional grid.

BHP’s coal mines in Queensland are the single biggest emitters in its Australian operations, producing almost half its pollution. Around a third of that comes from methane escaping from the coal seams, Wiley said.

It aims to capture about 50% of that methane and use it to generate electricity or sell to third parties, and said it was “exploring” options for the rest, adding that carbon offsets would likely be needed.

Still, of the $4 billion it plans to spend on decarbonization by 2030, BHP allocated a negligible amount to methane, with diesel, electricity and gas emissions the main targets. The company’s Western Australian iron ore division will be the biggest recipient of decarbonization investment between now and 2030, followed by the Escondida copper mine in Chile, it said.

(Updates with haul truck plans in 6th, 7th paragraphs)

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Quarterly financial reports play a vital role on Wall Street, as they help investors see how a company has performed and what might be coming down the road in the near-term. And out of all of the metrics and results to consider, earnings is one of the most important.

Life and the stock market are both about expectations, and rising above what is expected is often rewarded, while falling short can come with negative consequences. Investors might want to try to capture stronger returns by finding positive earnings surprises.

2 Stocks to Add to Your Watchlist

The Zacks Expected Surprise Prediction, or ESP, works by locking in on the most up-to-date analyst earnings revisions because they can be more accurate than estimates from weeks or even months before the actual release date. The thinking is pretty straightforward: analysts who provide earnings estimates closer to the report are likely to have more information. With this in mind, the Expected Surprise Prediction compares the Most Accurate Estimate (being the most recent) against the overall Zacks Consensus Estimate. The percentage difference provides the ESP figure.

The final step today is to look at a stock that meets our ESP qualifications. Steel Dynamics (STLD) earns a Zacks Rank #3 29 days from its next quarterly earnings release on July 19, 2023, and its Most Accurate Estimate comes in at $5.11 a share.

By taking the percentage difference between the $5.11 Most Accurate Estimate and the $5.10 Zacks Consensus Estimate, Steel Dynamics has an Earnings ESP of 0.2%.

STLD is one of just a large database of Basic Materials stocks with positive ESPs. Another solid-looking stock is Southern Copper (SCCO).

Southern Copper, which is readying to report earnings on July 25, 2023, sits at a Zacks Rank #3 (Hold) right now. It's Most Accurate Estimate is currently $1.03 a share, and SCCO is 35 days out from its next earnings report.

Southern Copper's Earnings ESP figure currently stands at 10.36% after taking the percentage difference between its Most Accurate Estimate and its Zacks Consensus Estimate of $0.93.

Because both stocks hold a positive Earnings ESP, STLD and SCCO could potentially post earnings beats in their next reports.

Find Stocks to Buy or Sell Before They're Reported

Use the Zacks Earnings ESP Filter to turn up stocks with the highest probability of positively, or negatively, surprising to buy or sell before they're reported for profitable earnings season trading. Check it out here >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Steel Dynamics, Inc. (STLD) : Free Stock Analysis Report

Southern Copper Corporation (SCCO) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

(Bloomberg) — Woodside Energy Group Ltd. gave the go-ahead for a $7.2 billion oil field off Mexico, the Australian producer’s first major fossil fuel investment since acquiring BHP Group Ltd.’s petroleum business last year.

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The Trion oil field, a joint venture with state-owned oil company Petroleos Mexicanos, will be Mexico’s first offshore deepwater oil project, according to Woodside. It has estimated resources of 479 million barrels of oil equivalent, and first production is expected in 2028, the Perth-based company said Tuesday.

Woodside, Australia’s biggest oil and gas producer, has come under intense pressure from activists and shareholders for its fossil fuel expansion plans, but has said new projects are necessary and can be consistent with global emission reduction goals. The company in February said it would review potential acquisitions in the Gulf of Mexico after reporting its highest-ever profit thanks to surging prices and the integration of BHP’s former energy unit.

“We have considered a range of oil demand forecasts and believe Trion can help satisfy the world’s energy requirements,” Chief Executive Officer Meg O’Neill said in a statement, adding two-thirds of the Trion resource was “expected to be produced within the first 10 years after start-up.”

Woodside inherited a 60% stake in Trion from BHP and will invest $4.8 billion in the project, subject to clearance from Pemex and regulatory approval expected in the fourth quarter. The field’s floating production unit will have capacity to produce 100,000 barrels of oil a day.

Woodside is also developing the vast Scarborough gas field off the coast of Western Australia and plans other oil and gas projects. It also intends to invest in clean hydrogen manufacture.

The company has been the subject of numerous shareholder resolutions from climate activists. One of its directors received the lowest support in a decade in April and 49% of shareholders rejected its climate report last year.

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(Adds quote from Samarco in paragraph 9)

May 31 (Reuters) – Brazilian miner Vale said late on Wednesday night it had entered into a binding deal on the parameters for a planned debt restructuring at Samarco , a joint venture it shares with miner BHP Group .

Vale said it had agreed on the deal with Samarco, BHP Billiton Brasil and certain creditors that hold more than 50% of Samarco's notes and unsecured bank debt.

The entire restructuring plan still needs approval from the bankruptcy court and the creditors.

In a securities filing, Vale said Samarco should emerge from the recovery process with a "lean capital structure" under the terms agreed and that payments to its creditors will be made over time, in line with Samarco's cash flow and ramp-up of operations.

"Samarco's contribution to fund the reparation will be capped from 2024 to 2030 at $1 billion," Vale said, adding that additional contributions from the joint venture would depend on "excess cash flow" it generates.

The remaining reparation balance should be equally shared between Vale and BHP, it said.

Separately, Samarco restructuring director Luiz Fabiano Saragiotto said all parties had made efforts to reach the current agreement, and that "with important concessions, this could allow for a balanced and lasting plan."

Samarco has for years struggled to reach an agreement with its creditors, who rejected Samarco's initial recovery plan in April last year.

Samarco's debt problems stem from the collapse of an iron ore tailing dam in the southeastern city of Mariana, which killed 19 people and severely polluted the Doce River with mining waste. (Reporting by Roberto Samora and Peter Frontini; Writing by Carolina Pulice; Editing by Sarah Morland and Tom Hogue)

May 31 (Reuters) – Brazilian miner Vale said on Wednesday night it had entered into a binding deal on the parameters for a planned debt restructuring at Samarco , a joint venture it shares with miner BHP Group .

Vale said it had agreed the deal with Samarco, BHP Billiton Brasil and certain creditors. (Reporting by Roberto Samora and Peter Frontini; Writing by Carolina Pulice; Editing by Sarah Morland)

Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. Buying under-rated businesses is one path to excess returns. To wit, the BHP Group share price has climbed 29% in five years, easily topping the market return of 14% (ignoring dividends). On the other hand, the more recent gains haven't been so impressive, with shareholders gaining just 7.5% , including dividends .

Although BHP Group has shed AU$7.1b from its market cap this week, let's take a look at its longer term fundamental trends and see if they've driven returns.

Check out our latest analysis for BHP Group

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

Over half a decade, BHP Group managed to grow its earnings per share at 31% a year. This EPS growth is higher than the 5% average annual increase in the share price. So it seems the market isn't so enthusiastic about the stock these days. This cautious sentiment is reflected in its (fairly low) P/E ratio of 7.74.

You can see below how EPS has changed over time (discover the exact values by clicking on the image).

earnings-per-share-growth

We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. This free interactive report on BHP Group's earnings, revenue and cash flow is a great place to start, if you want to investigate the stock further.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. In the case of BHP Group, it has a TSR of 116% for the last 5 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

It's good to see that BHP Group has rewarded shareholders with a total shareholder return of 7.5% in the last twelve months. That's including the dividend. Having said that, the five-year TSR of 17% a year, is even better. The pessimistic view would be that be that the stock has its best days behind it, but on the other hand the price might simply be moderating while the business itself continues to execute. It's always interesting to track share price performance over the longer term. But to understand BHP Group better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 2 warning signs for BHP Group (of which 1 is significant!) you should know about.

BHP Group is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Australian exchanges.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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A [sputtering recovery in China](https://www.wsj.com/articles/chinas-youth-unemployment-tops-20-amid-signs-of-stalling-recovery-cea320ef?mod=article_inline) has dragged copper prices to a five-month low, delaying one of the most widely anticipated bull runs in commodity markets.

(Bloomberg) — A major coal port in Australia said vessels bound for China had arrived at the facility this month, adding more evidence of an easing of curbs on sales to the top consuming nation.

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“There are early signs that the informal ban on Australian coal imports to China may be in the process of being removed,” Dalrymple Bay Infrastructure Ltd., which operates the world’s largest metallurgical coal export facility in Queensland, said Monday in a statement.

Coal suppliers including BHP Group Ltd. have resumed exports to China after authorities gave clearance for some purchases to restart after an easing of diplomatic tensions between the two nations. Imports by China, previously a key customer, halted in late 2020 as an informal ban was imposed following disagreements on issues including the origins of coronavirus.

China could import as much as 20 million tons of hard coking coal from Australia this year, producer Coronado Global Resources Inc. said last month.

Dalrymple Bay shipped 53.3 million tons in 2022, with Japan, South Korea, India and Europe accounting for 75% of exports, the company said in its statement.

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A little over a year ago, Melbourne-based BHP Group Ltd., the world’s largest miner, bowed out of the highly publicized bidding war with Australian billionaire Andrew Forrest’s Wyloo Metals Pty. Ltd. for a nickel project in Ontario’s Ring of Fire region.

The tug of war between the two Australian miners over a Canadian asset included multiple bids over almost half a year before Wyloo’s $616.9-million bid in December 2021 led to the takeover of Noront Resources Ltd. — and with it the much talked about Eagle’s Nest project in northern Ontario.

Losing out to Wyloo, however, didn’t discourage BHP on planting more flags in Canada. The company has made a series of alternative investments since bowing out of the Noront auction that haven’t received as much attention, but suggests that BHP may be open to building a battery metals empire in Canada.

“Mergers and acquisition is one lever for growth but not the only lever for growth for us at all,” Rag Udd, BHP’s president of minerals for the Americas, said after the company reported its latest quarterly financials on Feb. 21. “We see Canada as a highly prospective and desirable location to actually making investments,” he added.

Rag Udd, BHP’s president of minerals for the Americas.

BHP is coming off a down year. The company said this week that revenue fell 16 per cent over the final six months of 2022 from the same period in 2021, while profit tumbled 27 per cent. Udd attributed the decline to lower prices of iron ore and copper last year and rising costs. The company’s stock dropped sharply on the news, but recovered, and is now about four per cent higher than year ago.

Still, BHP, like most miners these days, is optimistic. The demand for metals that are crucial in powering batteries and driving the transition to greener energy — primarily lithium, nickel and copper — is on the rise as more countries look to meet their climate goals. Major mining companies such as Teck Resources Ltd., Barrick Gold Corp. and Rio Tinto Ltd. have been involved in building, exploring and buying projects containing these minerals to take advantage of the boom.

Governments also want a piece of the action. Canada, for its part, is attempting to lure miners and automakers to the region through tax credits and funds in order to build its own electric vehicle industry.

We see Canada as a highly prospective and desirable location to actually making investments

Rag Udd, BHP’s president of minerals for the Americas

BHP, which already produces a vast amount of nickel and copper at mines around the world, set up an office for minerals exploration in Toronto about a year-and-half ago. The group has a special focus on metals such as copper and nickel, and the objective is to find Canadian miners with good assets and invest in them.

Over the past year, the Australian miner invested $13.6 million in a copper project run by Vancouver-based Brixton Metals Corp., renewed its exploration alliance with Montreal-based Midland Exploration Inc. and invested $100 million in Vancouver-based Filo Mining Corp., which is developing a copper-gold project on the Argentinean-Chilean border.

These investments aren’t significant, especially for a company the size of BHP, which earned a revenue of about US$65 billion in 2022, Udd acknowledged. One of the reasons BHP has taken a cautious approach to investing in green metals in Canada is because it already runs the Nickel West operations in Australia, which it says is the world’s leading nickel supplier to the battery metals market.

A tonne of nickel powder made by BHP Group sits in a warehouse at its Nickel West division, south of Perth, Australia.

However, Udd said that Canada’s recently announced critical minerals strategy makes it a “very very attractive jurisdiction” for BHP and aligns it with the “company’s priorities moving forward.”

Released in December, Canada’s first significant critical minerals strategy aims to expand exploration, speed up mining projects, tackle labour shortages, and build secure supply chains with allied nations in a bid to build its on electric vehicle industry.

While the strategy comes with a list of 31 minerals that the government has deemed as “critical,” the country will initially prioritize six: lithium, graphite, nickel, cobalt, copper and rare earth elements.

If one of the goals was to attract international investment, then the strategy could be working because Prime Minister Justin Trudeau’s government got BHP’s attention.

“As we are looking to bring new supply to the market quickly, we hope that Canada actually continues to not only focus on the critical minerals strategy but also the efficiency of the regulatory processes associated with that,” said Udd.

Ottawa knows regulation is getting in the way of investment. Jonathan Wilkinson, the natural resources minister, said repeatedly last year that he’s working on making the system more efficient. When he released the critical minerals strategy in December, he acknowledged that permits need to be granted faster, and suggested the federal and provincial governments could conduct reviews concurrently instead of consecutively.

• BHP to start recruiting hundreds to operate potash mine in Saskatchewan

• Rio Tinto invests in early stage copper project amidst next ‘M&A cycle’

• Ottawa to give BHP up to $100 million to cut emissions at Jansen potash project

Of course, BHP’s main focus in Canada currently isn’t on battery metals, but potash, a vital crop nutrient that is also deemed as a critical mineral by the federal government. BHP is currently pressing forward with Jansen, a $7.5-billion project 140 kilometres east of Saskatoon that will be the world’s largest potash mine once completed.

However, judging by BHP’s activities in the last year and Udd’s statements on BHP’s future in Canada, few would be surprised to see the world’s largest miner expand its interests in Canada.

“We are looking to build up on in terms of thematics around decarbonization, electrification and population growth,” Udd said. “We see these as the mega-trends that are going to play out in the next 50 years globally, and we think Canada is well positioned.”

• Email: nkarim@postmedia.com | Twitter: naimonthefield

Listen to Down to Business for in-depth discussions and insights into the latest in Canadian business, available wherever you get your podcasts. Check out the latest episode below:

A look at the day ahead in European and global markets from Ankur Banerjee:

After a sputtering start to the week for the equities market, flash PMI data from Eurozone, UK and Germany will likely give some sort of direction for traders. Investors have put on their risk-off hats so far, with the dollar ascendant on Tuesday, having erased its year to date losses and as Asian equities flirt with six-week lows.

With U.S. markets set to reopen after Monday's holiday, investor focus will be squarely on minutes from the Feb. 1 Federal Reserve meeting, scheduled to be released on Wednesday.

At that meeting, the central bank raised interest rates by 25 basis points and said disinflation was underway. Resilient economic data for the past month has brought back investor fears that the Fed will have to hike more and stay higher for longer.

Minutes from the Reserve Bank of Australia's policy meeting in February showed the board abandoned all thought of pausing rate hikes in the face of sticky inflation and signalled more hikes would be needed in the months ahead.

Meanwhile, Russian President Vladimir Putin was due to make a speech on Tuesday setting out aims for the second year of his invasion of Ukraine. It comes just a day after U.S. President Joe Biden's surprise visit to Ukraine where he walked the streets of Kyiv and promised to stand with Ukraine as long as it takes.

In the corporate world, global miner BHP Group reported a dour first half earnings but pinned hopes on a rebound in demand from China, its biggest customer.

Europe's largest bank HSBC Holdings unveiled plans for a special dividend and share buybacks as rising interest rates swelled net interest income.

Earnings from Walmart later in the day will shed light on American consumers' buying habits in the face of rising expenses.

Key developments that could influence markets on Tuesday:

Economic events: Flash PMIs for Germany, France, UK and Eurozone

(Reporting by Ankur Banerjee; Editing by Sam Holmes)