DBRS Morningstar Confirms BHP Group Limited at “A” with a Stable Trend

DBRS Limited (DBRS Morningstar) confirmed the Issuer Rating of BHP Group Limited (BHP or the Company) at “A” with a Stable trend. The credit rating confirmation is supported by (1) the Company’s portfolio of high-quality mining assets, including the recent acquisition of OZ Minerals Limited and its low-cost copper assets that are predominately located in the mining friendly jurisdiction of Australia, and (2) the Company’s strong key credit metrics as a result of elevated commodity prices that have persisted over the past few years. The Stable trend reflects BHP’s downward trajectory of adjusted debt, which has gradually declined by 19% over the past five years.

BHP faced operating headwinds related to the Coronavirus Disease (COVID-19) pandemic, supply chain disruptions, and significant inflationary pressures in labor and consumable costs throughout F2021 to F2023. However, BHP’s total F2023 cost of goods sold and group expenses have stabilized and even declined slightly in F2023 relative to F2022. DBRS Morningstar notes that operating margins are expected to remain resilient based on Bloomberg consensus mined commodity price forecasts (as of October 5, 2023), albeit with risks to the downside because of the current global economic uncertainty.

The Company continues to make progress at its major projects, including (1) the Jansen Stage 1 potash project tracking on plan for initial production in 2026, (2) the expansion of its Port Hedland iron ore export operations to 330 million tonnes per year (mtpa; 100% basis) with a near-term focus on achieving a sustainable run rate of 290 mtpa and then gradually increasing to 330 mpta, and (3) the implementation of autonomous trucks across its Australian iron ore and coal mining sites, which include the Autonomous Haulage Project at the South Flank iron ore mine that was completed in F2023. Prior to this, BHP completed the automation of the truck fleet at the Goonyella-Riverside metallurgical coal mine in mid-2022 and also completed full automation of the truck haul fleet at the Daunia metallurgical coal mine in late 2021.

DBRS Morningstar views BHP’s liquidity profile as positive, with $12.4 billion of cash and $5.5 billion available on the Company’s credit facility at June 30, 2023. Nevertheless, a positive rating action in the near term is unlikely in the absence of a significantly accretive acquisition that materially improves BHP’s business risk profile. DBRS Morningstar estimates that prices for BHP’s mix of mined commodities would have to decline by approximately 25% to 30% below the Bloomberg consensus commodity price forecasts on a sustained basis before a negative rating action could be considered.

ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
DBRS Morningstar considered community relations as a relevant social factor for BHP. BHP and partner Vale S.A. (Vale; rated BBB (low) with a Stable trend by DBRS Morningstar) have yet to reach a final settlement with the local communities affected by the Samarco Dam failure in Brazil in 2015. From a reputational risk perspective, BHP has more downside than Vale in that Vale has already agreed to a settlement for the 2019 Brumadinho disaster.

There were no Environmental or Governance factors that had a significant or relevant effect on the credit analysis.

A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/416784 (July 4, 2023).

Notes:
All figures are in U.S. dollars unless otherwise noted.

DBRS Morningstar applied the following principal methodology:
-- Global Methodology for Rating Companies in the Mining Industry (August 16, 2023; https://www.dbrsmorningstar.com/research/419230)

The credit rating methodologies used in the analysis of this transaction can be found at: https://www.dbrsmorningstar.com/about/methodologies.

A description of how DBRS Morningstar analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://www.dbrsmorningstar.com/research/397223.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at [email protected].

The credit rating was not initiated at the request of the rated entity.

The rated entity or its related entities did not participate in the credit rating process for this credit rating action.

DBRS Morningstar did not have access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is an unsolicited credit rating.

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. DBRS Morningstar trends and credit ratings are under regular surveillance.

DBRS Morningstar will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at [email protected].

Information regarding DBRS Morningstar credit ratings, including definitions, policies, and methodologies, is available on www.dbrsmorningstar.com or contact us at [email protected].

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