BHP faces balance sheet pressure due to copper investment

BHP Group's ambitious capital investments in its copper projects are expected to strain its balance sheet, according to an analysis by Berenberg.

BHP faces balance sheet pressure due to copper investment

The German investment bank reiterated its ‘hold’ rating on the Melbourne-based mining giant, with a target share price of 2,000 pence. Despite this, BHP shares gained 0.9% to 2,064.00 pence in London trading on Friday afternoon and were up slightly at ZAR475.42 in Johannesburg. Berenberg estimates that BHP’s copper growth initiatives across Chile, Argentina, and Australia could require an investment between $21 billion and $26 billion over the next decade. The bank believes BHP’s capital expenditure (capex) guidance may need to increase from the current range of $11 billion to as much as $12 billion to $13 billion.

Increase in capex expected

“This increase in capex will likely put additional pressure on BHP’s balance sheet,” said Berenberg analyst Richard Hatch. “We expect net debt to steadily exceed the company’s target range of $5 billion to $15 billion by fiscal year 2027, which could prompt a revision of this target.” Hatch also noted that increased spending on growth and replacing declining volumes might limit BHP’s ability to deliver excess capital returns to shareholders. BHP's focus on expanding its copper portfolio comes after an unsuccessful attempt to acquire Anglo American PLC. The company is now doubling down on its own projects, aiming to boost its average copper production to 1.4 million tonnes annually from 2031 to 2040.

Outlook in Argentina and Chile

Hatch highlighted several key questions for BHP’s future strategy: “How much capex will be required to fulfill its copper growth ambitions in Chile and across its broader portfolio in Australia? Additionally, what will be the financial impact of BHP’s recent investments in Argentina?” In Chile, BHP is evaluating four primary development pathways, narrowing down from 20 initial studies. Final investment decisions for these projects are slated between FY 2026 and FY 2029. One notable project under consideration is the expansion of the Spence concentrator to boost throughput, alongside extending the lifespan of its leaching operations. In South Australia, BHP plans to double its copper production capacity to 650,000 tonnes per year by the mid-2030s, supported by a phased expansion of its smelting and refining facilities. Additionally, BHP is expanding its copper footprint by investing in early-stage projects, including a 50% stake in the Filo del Sol and Josemaria copper ventures. These investments are part of a broader strategy to enhance its copper production capabilities and secure long-term growth.