Morning Note: Market News and an Update from miner BHP.
Market News
Asian bonds followed Treasuries lower – the 10-year Treasury yield is currently 4.74%. Foreign holdings of US government bonds fell in June, led by declines in the stockpiles owned by Japan and China. Investors are turning bearish on French government bonds, as politicians ready for a fight over the 2027 budget before next year’s presidential election.
US Investment Grade bond sales set another monthly record as spending on the AI buildout fueled borrowing. August’s high-grade debt supply reached $145.2bn as of Monday, topping 2020’s total of $136bn for the month. January, June and July also had their best-ever months.
Brent rose for a third day (to $91 a barrel) as prospects for a near-term resolution of the US-Iran war receded with Donald Trump saying he’s not interested in extending a deal with Tehran. Gold trades around $4,400 an ounce.
BHP’s Brandon Craig told Bloomberg TV Indian demand for met coal will strengthen the market. The company earlier said improved copper and iron ore prices helped it beat profit forecasts (see below)
US equities fell last night – S&P 500 (-0.5%); Nasdaq (-0.3%) – with the subdued momentum continuing in Asia this morning: Nikkei 225 (-2.5%); Hang Seng (+0.1%); Shanghai Composite (+0.2%); Kospi (-1.6%).
The FTSE 100 is currently little changed at 10,722. UK wages ex-bonuses rose 3.5% in the three months to June, exceeding estimates. Unemployment held steady at 4.9%. Sterling trades at $1.3535 and €1.1685, while the 10-year Gilt yield has moved back up to 5.10%.
Company News
BHP has released results for the financial year ended 30 June 2026 which were better than market expectations, fuelled by higher copper prices. The company met or beat guidance across much of the portfolio and achieved industry-leading cost positions. Strong free cash helped deliver the largest dividend in four years. In response, the shares are up 2%.
BHP is a diversified resources company with exposure to copper, iron ore, coal, and potash. Assets are high quality and largely located in lower-risk jurisdictions, with strong development potential. The group’s capital allocation framework provides flexibility at the bottom of the cycle and discipline at the top, and has seen a shift in focus to low-cost, high-return projects. BHP has positioned itself to benefit from the mega-trends of decarbonisation, electrification, population growth, food security, and the drive for higher living standards in the developing world, all of which are key drivers of commodity demand.
The company’s external operating environment is being shaped by complex and evolving global developments. Policy uncertainty, particularly around tariffs, fiscal policy, monetary easing, and industrial policy, has been elevated and continues to influence investment and trade flows.
During the latest financial year, underlying attributable profit rose by 30% to $13.2bn, ahead of the market forecast of $12.7bn. The result was driven by strong operational performance and disciplined cost control, combined with higher realised prices.
Copper is the engine that is driving BHP’s growth. For the first time, the metal contributed more than half of the group’s underlying cash profit (EBITDA) and generated significant free cash flow, which means growth is self-funding. BHP has a well-defined project pipeline across Chile, Australia, and Argentina that can potentially lift production by around 40% by FY2035 (CAGR of 3%-4%). During the latest year, total copper production was down 3% to 1953kt, in line with guidance (1,900kt- 2,000kt), with the flagship Escondida operation 3% lower at 1,261kt. The average realised price was up 35% to $5.74/lb. Underlying EBITDA rose by 48% to $18.2bn, with the margin up 11 percentage points to 70%. Production guidance for FY2027 is 1,650kt-1,800kt.
Iron ore production increased 1% to a record 265mt, versus guidance of 258mt-269mt. The flagship Western Australia Iron Ore (WAIO) achieved flat production of 257mt and an average realised price up 3% to $84.56/wmt. The company had to navigate some tougher negotiations with China’s state buyer (CMRG), leading to some pricing concessions. The company maintained its position as the world’s lowest cost iron ore producer, with underlying EBITDA up 1% to $14.5bn. Plans for Ministers North, a new mine in the Pilbara, will help sustain WAIO production and further strengthen one of the most competitive businesses in the global mining industry.
Coal profitability rose by 45% to $0.83bn driven by higher production – steelmaking coal (+3%), energy coal (+9%) – and mixed realised price – steelmaking coal (+8%), energy coal (-3%).
Overall, strong cost management helped to reduce unit costs by 6.1% across the group’s major assets, despite headwinds from inflation, higher diesel prices, and global supply chain disruptions. The EBITDA margin increased by six percentage points to 59%, the highest in four years, and maintaining the 25-year average above 50%.
Capital and exploration expenditure grew by 5% to $10.3bn, focused primarily across Chile, Canada and Australia. Stage 1 of the Jansen potash project in Canada is 84% complete and on track for first production in mid-2027. Jansen is expected to operate for more than 60 years and establishes BHP in a new commodity that is essential to food security. However, the company had already disclosed the higher cost estimate for Jansen and as a result recognised an impairment charge of $2.3bn in relation to the investment to date in the project.
In each of the next two years, BHP expects to spend $11bn in capital and exploration, and $11bn on average each year between FY2029 and FY2031. 70% of medium-term capital spend is expected to be focused on future-facing commodities.
During the year, free cash flow grew 83% to $9.8bn. In addition, BHP received silver streaming proceeds of $4.3bn and in August 2026, Global Infrastructure Partners provided $2.0bn in relation to BHP’s share of WAIO’s inland power consumption. Net debt fell from $12.9bn to $8.7bn (only 13.4% gearing), below the target range of $10bn-$20bn.
BHP’s dividend policy provides for a minimum 50% payout of underlying attributable profit at every reporting period. For FY2026, the group continued its track record of delivering robust shareholder returns through the cycle – a dividend of $1.72 per share has been declared (or $8.7bn), the highest in four years and amounting to a payout ratio of 66%.
We believe commodities and resource stocks are inexpensive when compared to financial assets and are relatively under-owned in investor portfolios. We also believe they provide something of a hedge against inflation. Furthermore, the mining sector has a long history of M&A, and looking forward, further industry consolidation would open the sector to generalist investors at a scale that would make it easier to bring on large and complex projects needed for new supply.
