BHP Group Limited (BHP (BHP)), the world's largest mining company, just dropped its operational update for the fiscal year ended June 30, 2026. On the surface, it looks fine: Western Australia Iron Ore (WAIO) set a production record, and group copper output hit 1.95 million tons. But dig a little deeper, and you'll see a company entering a much tougher phase.
New CEO Brandon Craig is taking the helm at a time when declining ore grades, processing headaches, unplanned equipment failures, labor tensions, and rising capital costs are all converging. Oh, and there's a $2.3 billion impairment on the Jansen potash project in Canada. Strong commodity prices have cushioned the blow for now, but the next year looks like a grind: lower volumes, tighter cost discipline, and an urgent need to accelerate copper growth in the US and Argentina.
Higher Prices Mask Volume Declines
Let's start with the good news: copper prices have been on a tear. BHP's average realized copper price rose to $5.74 per pound, and iron ore prices were firmer too, with WAIO realizing $84.56 per wet metric ton, up 3% year-on-year. That helped offset some operational softness. But the softness is real: copper production fell 5% year-on-year, and iron ore dropped 3%.
BHP says fiscal 2026 unit costs should land at the bottom end of guidance for copper, within range for WAIO, and toward the top end for BMA coal. Craig's early plans emphasize cost controls, but the headwinds are building.
FY27 Guidance: A Sharp Drop in Copper
The real worry is fiscal 2027 guidance. BHP expects group copper output to fall to between 1.65 million and 1.8 million tons, down from 1.95 million tons in FY26. That's a drop of up to 15%.
The main culprit is Escondida in Chile, the world's largest copper mine. Concentrator feed grade fell to 0.90% in FY26 from 1.02% a year earlier, and it's expected to drop further to about 0.70% in FY27. That's a brutal decline. Meanwhile, Spence, another Chilean operation, is struggling with complex hypogene ore processing and lower stacked feed grades. And in South Australia, an unplanned underground conveyor belt failure at Carrapateena could cause up to eight weeks of mine production impact.
It's not just copper. BHP's iron ore engine is also facing headwinds. About half of the 450 workers at the Port Hedland export terminal went on an eight-hour strike today — the first industrial action in the region's mining sector in decades. Workers are protesting pay erosion and inconsistent individual employment contracts. Negotiations are set for July 21, according to the Financial Times. That's a risk to the Pilbara supply chain.
Looking to the US and Argentina
With Chile and Australia getting tougher, BHP's plans in the US and Argentina are becoming more important. In Arizona, BHP offloaded the legacy San Manuel asset, gaining a 30% fully diluted equity stake in Faraday Copper. It still holds interests in the broader Arizona district, including Resolution and Globe-Miami.
In Argentina, the Vicuña project — a world-class copper-gold play — received approval under the RIGI incentive regime for the Josemaría and Filo del Sol deposits, securing a 40-year fiscal framework. The project remains on track for a Stage 1 final investment decision in calendar 2026.
These are long-term bets, but they show where BHP sees future growth. For now, though, the new CEO has a lot of near-term fires to put out.
Market Reaction
Investors aren't thrilled. BHP shares were down 3.12% at $82.81 in premarket trading on Thursday.
