By Sid Ruttala

For most of the past twenty years, owning BHP Group Limited (ASX: BHP) meant owning iron ore. Everything else was a portfolio garnish. Investors could argue about copper, coal, oil or potash, but the cash came out of the Pilbara and everyone knew it.

That is no longer true. In the FY26 result handed down on 18 August, copper generated more than US$18 billion of underlying EBITDA, or 54 per cent of the group total. Copper is now the biggest earnings driver at BHP, and it happened faster than most investors were positioned for.

The same result also contained a US$2.3 billion impairment on the Jansen potash project, a 41 per cent cost increase on its second stage and a forward copper production guide that steps down meaningfully. BHP is a better business than it was three years ago and a more complicated one. Both things can be true.

The numbers

Revenue rose 15 per cent to US$58.76 billion. Attributable profit rose 9 per cent to US$9.83 billion. Underlying attributable profit, which strips out the Jansen write-down and other one-off items, rose 30 per cent to US$13.20 billion from US$10.16 billion. Underlying EBITDA climbed to US$32.95 billion from US$25.98 billion. Underlying basic earnings per share reached 260.0 US cents against 200.2 US cents in the prior year.

The dividend was the headline for income investors. BHP declared a fully franked final dividend of US99 cents per share, well up on the US60 cents paid a year earlier, taking the FY26 total to US$1.72 per share. That is the highest full year payout in four years and represents a payout ratio of 72 per cent, comfortably above the 50 per cent minimum under the capital allocation framework. Total cash returns announced for FY26 came to US$8.7 billion.

The balance sheet did the quiet work. Net debt closed at US$8.7 billion, down from US$12.9 billion a year earlier and better than the roughly US$11 billion management had guided to. A miner that reduces debt by more than US$4 billion while lifting its dividend and spending heavily on growth is generating a great deal of cash.

The shares rose about 2.7 per cent on the day to around A$63.87, within reach of the record high of A$65.98 set in mid June.

Where the money came from

Price did more work than volume.

The average realised copper price rose 35 per cent to US$5.74 per pound. Iron ore realised US$84.56 per wet metric tonne, up 3 per cent. Steelmaking coal averaged US$210.21 per tonne, up 8 per cent, while energy coal slipped 3 per cent to US$104.28 per tonne.

Volumes were more mixed. Iron ore production hit a record 265 million tonnes, up 1 per cent, with Western Australia Iron Ore contributing 257 million tonnes. Copper production actually fell 3 per cent to 1,953 thousand tonnes, held back by a 21 per cent decline at Pampa Norte. In other words, copper became the dominant earnings contributor despite producing less of it, which tells you how much of the FY26 result is a price outcome rather than an operating one.

Costs held up. Unit costs came in at the bottom end of guidance across the copper assets, within guidance at Western Australia Iron Ore and towards the top end at BMA. Delivering cost guidance through an inflationary period is genuine execution and should not be waved past.

The pivot is real, and it is expensive

BHP is explicitly building itself into a copper company with an iron ore cash machine attached. Management expects organic growth projects to support attributable copper equivalent production growth of approximately 3 to 4 per cent annually between FY27 and FY35.

Getting there costs money. FY27 capital and exploration expenditure is guided at approximately US$11 billion, split between US$1.0 billion of deferred stripping, US$3.2 billion of baseline sustaining capital, US$2.7 billion of non-recurring sustaining capital, US$3.8 billion of growth capital and US$0.3 billion of exploration. Over the medium term the allocation runs at roughly US$5.4 billion to copper, US$3.1 billion to iron ore, US$2.0 billion to potash and US$0.5 billion to coal.

The individual projects are substantial. At Escondida, US$0.5 billion of pre-commitment funding has been approved for a new concentrator ahead of a possible final investment decision in calendar 2027 or 2028. In the Pilbara, the Ministers North project at roughly US$0.9 billion is intended to add about 20 million tonnes per annum with first ore in FY29, sustaining Western Australia Iron Ore above 305 million tonnes per annum. In Argentina, the Vicuña copper district secured 40 years of tax and regulatory certainty under the government’s investment incentive regime. BHP has also applied to restart the mothballed Cerro Colorado mine in Chile and agreed transactions lifting its stake in Faraday Copper to about 32.5 per cent.

This is a serious, coherent growth pipeline. It is also a commitment of roughly US$11 billion a year, every year, before a dollar reaches shareholders.

Jansen is the cautionary tale, and it deserves a full hearing

The Jansen potash project in Saskatchewan was approved in August 2021 with a Stage 1 investment estimate of US$5.7 billion. That estimate moved to a range of US$7.0 billion to US$7.4 billion in July 2025 and has now been updated to approximately US$8.4 billion including contingencies. Stage 1 is 84 per cent complete and first production remains scheduled for mid calendar 2027.

Stage 2 has been worse. Following a detailed review completed in June 2026, the total investment estimate rose from US$4.9 billion to US$6.9 billion, a 41 per cent increase, with first production pushed to late FY2031. Stage 2 is 16 per cent complete. At consensus potash prices, the internal rate of return on Stage 2 is 11 per cent with an eight year payback.

Given the higher forecast capital intensity across the project, BHP recognised a US$2.3 billion impairment in FY26 against its investment to date. Barclays has calculated total cash deployment across Jansen at roughly US$20.3 billion, of which about US$4.1 billion has now been impaired, including a US$1.8 billion post-tax write-down back in FY21.

Combined, the two stages are expected to produce 8.5 million tonnes per annum, around 10 per cent of global potash supply, from an asset BHP expects to operate for more than 60 years at the low end of the cost curve.

That may still prove to be a good asset. An 11 per cent return on a multi decade, low cost position in a commodity with reasonable demand fundamentals is not a disaster. But it is a long way from the returns that justified the original decision, and the pattern matters more than the number. Large greenfield mining projects have a persistent tendency to cost more and take longer than approved. Investors should read BHP’s future growth commitments with that history in mind, not because management is careless, but because the industry is.

Risks and counterpoints

Copper volumes step down before they step up. FY27 copper guidance is 1,650 to 1,800 thousand tonnes, more than 150 thousand tonnes below FY26 actual output, driven by grade decline at Escondida. Grade decline is a structural feature of ageing orebodies, not a cyclical dip. The new concentrator is the answer, but it is years away and not yet approved.

The result is heavily price dependent. With copper at 54 per cent of underlying EBITDA and the realised price up 35 per cent, the sensitivity is significant. As a rough guide, a 10 per cent move in the realised copper price at FY26 volumes is worth in the order of US$2 billion at the EBITDA line before any cost offsets. That works powerfully in both directions, and FY26 caught the favourable side.

The payout ratio is a cycle outcome, not a promise. A 72 per cent payout at the top of a strong copper year is not a forward commitment. BHP’s dividend is set by applying a payout ratio to underlying profit, which means the payment falls when the commodity falls. Income investors treating US$1.72 per share as a base case should be careful.

Capital intensity constrains flexibility. Roughly US$11 billion of annual capex against a dividend of this size leaves less room than the headline cash returns suggest, particularly if prices soften.

Leadership and execution. Brandon Craig has taken over as chief executive. New management at a large miner usually brings a portfolio review, and reviews can produce impairments, disposals or changed capital priorities.

Currency and franking. Dividends are declared in US dollars, so the Australian dollar amount received varies with the exchange rate. They are, however, fully franked, which remains genuinely valuable for SMSF and low tax rate investors and is a meaningful part of the total return story on this stock.

Investor implications

The reason BHP is worth thinking about carefully right now is not the FY26 result. It is the starting price.

The shares have roughly doubled from the April 2025 low of A$33.25 and sit close to their record high. Part of that reflects genuine improvement in the business, particularly the copper mix shift and the balance sheet. Part of it reflects a rotation out of expensive banks into materials that began in late 2025 and has run hard.

For long term investors, the practical question is whether you are buying a structurally better portfolio or a cyclically flattered one. The honest answer is both, in proportions that depend on where you think the copper price goes. BHP’s own case rests on electrification, grid investment and data centre driven demand, which is a reasonable thesis and also a widely held one.

What can be said with more confidence is that BHP now converts cash better, carries less debt and owns a growth pipeline weighted towards the commodity with the strongest structural demand argument. What can be said with less confidence is what anyone should pay for that.

TAMIM Takeaway

BHP delivered a strong FY26. Underlying profit rose 30 per cent to US$13.2 billion, net debt fell to US$8.7 billion, and the fully franked dividend reached US$1.72 per share, the highest in four years. Copper overtook iron ore as the largest earnings contributor, generating more than half of group underlying EBITDA.

What the market may be underweighting is how much of that came from a 35 per cent lift in the realised copper price rather than from volume growth, and how much capital the next decade of growth requires. FY27 copper volumes step down on Escondida grades, capex runs at around US$11 billion a year, and the US$2.3 billion Jansen impairment is a live demonstration that large mining projects rarely land on their original budget.

For long term investors, the lesson is not to avoid cyclical businesses. It is to be clear about which part of a strong result is the business and which part is the commodity. BHP’s iron ore and copper assets are genuinely world class and the capital allocation framework has served shareholders well. The share price, close to a record high after roughly doubling from its 2025 low, has already absorbed a good deal of that.

The mindset to bring is the one that suits resources generally: focus on cost position, balance sheet strength and payout discipline, accept that the earnings will swing, and be more interested in what you pay than in what the last twelve months delivered.

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Disclaimer: BHP Group Limited (ASX: BHP) is held in TAMIM portfolios as at the date of article publication. Holdings can change substantially at any time.