BHP Group and the Copper Supercycle: A Strategic Buy in a Supply-Constrained World

The global copper market is entering a defining phase of the energy transition, driven by insatiable demand for renewable infrastructure, electric vehicles (EVs), and smart grids. At the center of this transformation is BHP Group, a mining giant whose strategic positioning in copper production and resource sovereignty is reshaping its equity valuation. With copper prices hitting record highs of US$10,800 per tonne on the London Metal Exchange, BHP's FY2025 results underscore its dominance in a sector poised for decades of outperformance.

Copper Production and Strategic Investments: Fueling the Supercycle

BHP's copper operations have become the cornerstone of its financial resilience. In FY2025, the company produced over 2 million tonnes of copper, a 28% increase over three years, driven by record output from its Escondida mine in Chile and expanded operations in South Australia. This surge in production translated into a 43.9% jump in the Copper Division's EBITDA to US$12 billion, reflecting the metal's growing importance in BHP's portfolio.

The company's capital allocation strategy is equally compelling. BHP plans to invest US$11 billion annually in copper projects for FY2026 and FY2027, with a focus on expanding Escondida's capacity by 22% and advancing the Jansen potash project in Canada. These investments are not just about scaling output but also about future-proofing against supply constraints. For instance, BHP's use of precision mining and water management technologies allows it to extract copper from lower-grade ores, ensuring long-term sustainability. By 2030, the International Energy Agency estimates that 5.5 million tonnes of new copper supply will be required annually, a demand BHP is uniquely positioned to meet.

Resource Sovereignty: A Double-Edged Sword

Resource sovereignty policies in key jurisdictions like Chile and Australia have both challenged and strengthened BHP's operations. In Chile, where Escondida accounts for two-thirds of BHP's copper production, regulatory stability has enabled the company to maintain production guidance despite declining ore grades. Conversely, in Australia, BHP's Olympic Dam operation benefits from a favorable regulatory environment and access to renewable energy, reducing costs and supporting long-term production goals.

However, resource sovereignty is not without risks. National control over critical minerals has pushed BHP to diversify its geographic footprint. For example, the company's Vicuña joint venture in Argentina and Jansen project in Canada are strategic responses to potential constraints in Chile and Australia. These projects, though capital-intensive, align with BHP's broader objective of geographic diversification, ensuring resilience against regional disruptions while tapping into emerging markets with strong resource sovereignty frameworks.

Equity Valuation: Copper Prices and Macroeconomic Tailwinds

BHP's equity valuation is inextricably linked to copper price trends and macroeconomic dynamics. With copper demand projected to grow at 2.6% annually through 2035, BHP's 27-year reserve base of 39.2 million tonnes provides a robust foundation for long-term value creation. The company's FY2025 underlying EBITDA of US$26 billion-53% of revenue-highlights its operational efficiency, while net operating cash flow of US$18.7 billion supports aggressive shareholder returns, including a 60 US cents per share final dividend announced in FY2025 results.

Despite these strengths, BHP's stock is currently undervalued by 10% according to Morningstar, reflecting concerns over China's economic slowdown. Yet, the company's low-cost copper and iron ore operations, combined with its disciplined capital allocation, offer a buffer against macroeconomic volatility. Analysts project copper pricing to enter a phase of durable outperformance by the end of the decade, which could further narrow the valuation gap.

Conclusion: A Strategic Buy in a Supply-Constrained World

BHP Group's strategic investments in copper, coupled with its adaptive approach to resource sovereignty, position it as a prime beneficiary of the global supercycle. While regulatory and geopolitical risks persist, the company's technological innovation, geographic diversification, and strong balance sheet mitigate these challenges. For investors seeking exposure to a commodity-driven equity with long-term growth potential, BHP represents a compelling case. As the energy transition accelerates, BHP's copper reserves and operational excellence will likely drive both financial performance and shareholder value.