BHP Group Limited (BHP)

Total return at 5 years: -6.3%/year = -9.1% appreciation + 2.8% dividend. The target price ($54) is ex-dividend; the $10 in dividends collected over 5 years are added separately.

The methods disagree: one places the value today above the price ($87) and the other below.

Today — expensive, no margin of safety: at $87 trades ~67.2% above its value discounted to today (~$52); the expected return does not even reach the risk-free rate (4.5%).

At 5 years — Sobrevalorado: the expected total return is negative — the price already discounts a demanding scenario that, if not met, results in a loss.

The bridge: the return at 5 years falls below the risk-free rate (4.5%) — which is why there is not even a discount to today's value. To require a 15% annual return, it would need to be bought at ~$33.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($87) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (-4.3%/year) than we project (0.0%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$9.7 bn of owner earnings in year 5 (vs ~$12.1 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on Utilidad atribuible (P/E a mitad de ciclo). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Year 0 = the fiscal year ended 30 June 2026, the annual reporter convention: BHP files a 20-F and its interim results arrive on 6-K with no tagging, so there is no tagged quarter with which to chain a rolling window. Layer A is fresh: the 20-F was filed on 18 August 2026 and XBRL closes on that date. Two normalizations, both declared. First, the non-cash impairment of US$2,300M on the Jansen potash project (before and after tax, from the increase in the second-stage investment estimate from US$4,900M to US$6,900M): reported attributable earnings of US$9,833M become US$12,133M, the year-0 margin becomes 20.65% and the operating margin, in the same proportion, 44.5%. Second, the mid-cycle discipline the method requires of a commodity producer: FY2026 revenue grew 14.6% with copper production falling 3.2% —from 2,016.7 kt to 1,952.8 kt—, that is the jump is realized price and not volume, and price is not extrapolated. That is why the base path starts at −2.0%, within the range of the three-year trajectory (+3.4% · −7.9% · +14.6%) though below the last year: it is the partial reversion of the copper price against the volume that is committed. The volume that supports the subsequent recovery comes from the filing itself: potash production from the middle of calendar year 2027, iron ore above 305 Mtpa (100% basis) by the fourth quarter of FY2028, and a copper capital plan of US$1,400M in FY2027, US$1,900M in FY2028 and US$3,000M a year on average between FY2029 and FY2031. The company publishes production and capital guidance, not revenue or earnings guidance. The earnings release could not be identified programmatically —BHP seals the period of its 6-Ks in 686 of 814 filings—, so no guidance not cited from the annual report is attributed to the path; the gap is declared here rather than assumed. The model is per share and works in certificates: one New York Stock Exchange share represents two ordinary shares, as the 20-F itself declares, so the 5,089.0M ordinary shares in XBRL equal 2,544.5M certificates and the dividend of 172 US cents per ordinary share determined in respect of FY2026 equals US$3.44 per certificate. Cash and debt are set to zero in the common block because the metric is post-interest: the cost of funding is already inside attributable earnings and deducting it again in the bridge would count it twice. The change in working capital is taken as zero because the cash flow statement does not isolate it, and the split of capital investment follows Greenwald: with revenue expanding, the US$3,648M by which invested capital exceeds depreciation buys growth —Jansen and the copper expansion, both named in the filing— and the rest is maintenance. BHP executed no buybacks: the 20-F declares that during FY2026 there were no purchases of ordinary shares on or off market, so there is no share path and the cash return to shareholders travels entirely through the dividend.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $54 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $87, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $54 in 5 years plus $10 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $52. Against the current market price ($87), the margin of safety is -67.2% (trades above the maximum → a premium is paid) and the total return at that price would be -6.3% annually.

• Entry multiple. At 18× on today's earnings, and on earnings that are additionally propped up by the realized copper price: the economic multiple is higher than the apparent one.
• Exit multiple. Twelve times mid-cycle attributable earnings, within the commodities archetype's band and consistent with 3% terminal growth.
• Estimated return. The base case yields -6% annually, with the favorable scenario at -6% and the adverse at -6%: not even the good side of the range reaches the 10% bar.
• Dividend yield. 2.3% on a payment of 172 cents per ordinary share determined against FY2026 earnings, with a minimum payout policy of 50% of underlying profit.

• ✓ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (100%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Return on capital. The 21.4% return on the balance sheet's invested capital comfortably exceeds the 10% bar and matches the 26.1% underlying return on capital employed the company reports.
• Cash generation. Operating cash flow of US$21,778M on revenue of US$58,760M, with the company reporting an average above US$20,000M annually since FY2010.
• Predictability. Volume is predictable and price is not: attributable profit swung between US$7,897M and US$12,921M over four fiscal years without the business changing.
• Accounting distortions. The US$2,300M non-cash Jansen impairment sinks FY2026 reported earnings without touching cash; the base normalizes it and declares it rather than carrying it forward.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

For a commodity producer, revenue breaks down into production volume times realized price, and separating the two legs is what decides whether growth is extrapolable. In FY2026 the two main lines tell the same story: copper grew 31.1% while production fell 3.2%, and iron ore grew 4.2% with the realized price rising 3.0% (US$84.56 vs US$82.13/wmt) on essentially flat Western Australia volume (+0.1%); neither of the two main lines contributes new volume in the year. The committed volume leg going forward is published guidance, not FY2026 production: iron ore above 305 Mtpa (100% basis) toward the fourth quarter of FY2028 and Jansen potash from mid-CY2027. Segment revenue adds up to US$61,163M against consolidated revenue of US$58,760M because the breakdown grosses up investments accounted for under the equity method (US$2,522M in copper and US$137M in coal), with inter-segment elimination at zero. The dividend determined in respect of FY2026 was 172 US cents per ordinary share, equivalent to US$3.44 per New York Stock Exchange ADS, which represents two ordinary shares.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Source of growth. In copper it is price: 31.1% more revenue with 3.2% less production. In iron ore it is also price: 4.2% more revenue with the realized price rising 3.0% on essentially flat Western Australia volume.
• Committed volume. Potash from mid-calendar-year 2027 and iron ore above 305 Mtpa toward the fourth quarter of FY2028, both with guidance published in the annual report.
• Reinvestment runway. The plan aims to raise attributable copper production by around 40% toward FY2035, with growth capital of up to US$3,000M annually between FY2029 and FY2031.
• Lines exiting. Energy coal has Mt Arthur's planned closure for FY2030, and Western Australia Nickel is under temporary suspension pending a divestment evaluation.

• Ten-year relevance. Copper, iron ore, and potash remain structural inputs for electrification, construction, and food: demand is predictable even if price is not.
• Differentiated product. There is none: it is a commodity and the company is a price taker. The advantage plays out entirely on the cost curve position.
• Pricing power. None. Price is set by the market, and the company only controls volume, cost, and mix.
• Operating leverage. High and double-edged: with heavy fixed costs, nearly every point of realized price falls straight to the result, and so does every point of decline.
• Recession behavior. The company reports a pre-depreciation result margin above 50% for more than twenty-five years and net operating cash flow above US$20,000M annually since FY2010.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✓Leverage (net debt / EBITDA)Net cash $0 bn
• ✓Interest coverage (EBIT / interest)18.0x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 100% of ROIC
• ✓Value creation (ROIC − 10% bar)+11pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 1.6x
• –Float / working capitalNeutral WC
• –Dilution (SBC % of revenue + shares)no data

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Leverage. Net debt of US$8,694M and leverage of 13.4%, against US$12,924M and 19.8% the prior year: the balance sheet deleveraged within the period.
• Credit rating. A1 and P-1 from Moody's, A and F1 from Fitch, both with a stable outlook.
• Liquidity. Cash of US$18,532M plus a fully undrawn committed revolving facility of US$5,500M.
• Interest coverage. Net finance costs of US$1,455M against an operating result of US$23,869M: coverage is not a point of stress even in an adverse cycle.
• Closure obligations. Closure and rehabilitation are planned from the start of the asset's life cycle, with Mt Arthur's closure expected for FY2030 and carbon credit commitments below US$75M annually through FY2030.

How cash comes in and how it is deployed. In green, the business's own cash (the owner-FCF it generates and reinvests); in gray, the float and credit — customer and funding money, which is not the shareholder's.

FY2026's allocation combines operating cash flow with proceeds from the Antamina silver streaming transaction with Wheaton Precious Metals (US$4,300M, recorded as a liability for future deliveries and not as excess cash): US$21,778M of operating cash flow plus US$4,300M of streaming proceeds, against US$9,849M of capital expenditure, US$8,700M of dividends, and US$2,000M of Samarco settlement payments, leave an operating surplus of US$3,229M. Net debt fell US$4,230M in total (from US$12,924M to US$8,694M) from the sum of that surplus and the streaming proceeds. The reinvested share is skewed toward growth —Jansen and the copper expansion— rather than maintenance, which explains why reported free cash flow is depressed by choice and not by business weakness.

• Reinvestment. It reinvests at returns on capital well above the 10% bar, though execution of large projects is the weak point demonstrated within the period.
• Buybacks. There were no buybacks in FY2026 or under the current authorization: cash return traveled entirely through the dividend, which avoids buying back at the top of the cycle.
• Acquisitions. Growth is bought through own projects and joint agreements —Vicuña with Lundin Mining, Resolution Copper with Rio Tinto— rather than through acquisitions that dilute focus.
• Alignment. There is no DEF 14A proxy since it is a foreign private issuer, so director and officer ownership cannot be verified, and the point is declared as a gap.

• No positive source of discount was identified: there are no missing buyers or motivated sellers that would explain a price below value.
• The price already incorporates the copper electrification narrative the company itself lays out: global demand growing from about 34 Mtpa to more than 50 Mtpa toward 2050 on energy transition and data centers.
• The earnings against which the multiple is measured reflect a high price, not mid-cycle, which makes the apparent multiple lower than the economic one.
• The 2.3% dividend yield rests on a payment determined against that same high-price earnings figure and a minimum payout policy of 50% of underlying profit.

This section answers why the market pays this price, and the honest answer is that no discrepancy between perception and reality favoring the buyer was found. There is no missing coverage, no recent spin-off, no cycle trough, and no punishment for a one-time charge: the US$2,300M Jansen impairment is exactly the kind of event that usually creates an opportunity, but here it did not depress the price. The absence of an identifiable source is not read as missing buyers —that would invert the test—: it is read as the signal that the analytical edge is missing. What the market is paying for is copper scale and FY2026's realized price projected forward, and that is a premise the year's own production contradicts, because it fell 3.2%.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -19%/year (-65% total): the margin of safety protects the downside. The bull (+3%/year, +17% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Commodity price. Earnings depend on a price the company does not set; copper's operating result grew 58.9% on production that fell 3.2%.
• Large-project execution. Two upward revisions to Jansen's cost within a single period —to US$8,400M for the first stage and to US$6,900M for the second— and a US$2,300M impairment.
• Operational events. Geotechnical instability, hazardous-material containment failures, and extreme weather; Tropical Cyclone Koji affected steelmaking coal production at BMA in FY2026, with the impact partially mitigated and no material financial effects identified.
• Key infrastructure. Tailings, water, power, plants, rail, and ports that are long-lived and partly shared, with insurance that may prove insufficient in the event of a prolonged outage.
• Geopolitical and trade risk. Tariffs, export controls, and disruptions to shipping routes; the company states its exposure increased during FY2026.
• Capital cycle. High copper returns attract investment into the industry and compress every producer's margins, including the lowest-cost one.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  A wide moat and ROIC 21% above the 10% bar, but the price sits above value (no margin) → great business, expensive.

• Peter Lynch Growth at a reasonable price (GARP)

  A cyclical, growing 0% — no conclusive PEG to judge the price.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 12% (EBIT/EV) + ROIC 21% → makes the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts -4% vs our 0%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -23%/yr over 5y (material loss) → risk of permanent capital loss.

• Pat Dorsey Moat strength (Five Rules)

  A wide moat, stable; sources: cost advantage, efficient scale, intangibles → passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -4%, within what we project (0%) — the story squares with the numbers.