BHP's Copper Pivot Wins Converts, but the Price of Admission Divides Managers

Copper now drives more than half of BHP's earnings, and fund managers agree the business has changed. What they cannot agree on is whether the market is paying for structural demand or a tariff-fuelled copper rally.

· 8 min read

A copper company with an iron ore engine

Australia's fund managers have stopped arguing about whether BHP is changing and started arguing about what that change is worth. In October, Ausbil Investment Management described the miner as its largest overweight position, while Auscap Asset Management used its October quarterly report to warn that the market may be paying an AI premium for what is, in its view, a tariff-driven copper rally. Between those two poles sits a register of managers who broadly agree on the quality of the assets and disagree sharply on the price of admission.

The common ground is the pivot itself. Tamim Funds Management, in an August monthly report written after the FY26 result, put it plainly: for most of the past two decades owning BHP meant owning iron ore, and that is no longer true. Copper generated more than US$18 billion of underlying EBITDA in FY26, or 54 per cent of the group total, according to Tamim. In Tamim's words, “BHP is a better business than it was three years ago and a more complicated one.”

BHP is a better business than it was three years ago and a more complicated one.

— Tamim Funds Management, Monthly Report, August 2026

The bull case: structural demand and self-funded growth

Ausbil's October commentary frames the opportunity as a multi-decade demand story rather than a commodity trade. The manager said “Electrification, decarbonisation, the construction of data centres and electricity grids, onshoring manufacturing, increased defence spending and the rebuilding of war-torn regions all require large amounts of steel and copper.” Ausbil described BHP as a low-cost producer of both metals, exceptionally well managed and committed to substantial dividends, and said the stock is currently its largest overweight, aided by the recent dividend payment.

Electrification, decarbonisation, the construction of data centres and electricity grids, onshoring manufacturing, increased defence spending and the rebuilding of war-torn regions all require large amounts of steel and copper.

— Ausbil Investment Management, Article, October 2026

Hyperion Asset Management shares that structural view. In its August monthly report, Hyperion said it remains highly constructive on copper prices given the structural supply-demand imbalance and expects BHP's financials to benefit significantly over the coming years as the world's largest copper producer. Hyperion also noted management's description of copper as the company's key growth driver, alongside iron ore operations that remained the lowest cost producer for a seventh consecutive year.

Regal Funds Management has made the most expansive case. Writing in August, Regal's Charlie Aitken relayed the CFO's message that copper production is set to rise by 50 per cent by the mid-2030s, with three major copper projects coming online over the next 12 to 18 months, self-funded and leaving $35 billion of attributable free cash flow after the full growth plan over five years. Aitken argued that sell-side forecasts of falling earnings ignore a widening copper supply deficit: “They broadly continue to forecast that commodity prices revert to the cost curve, something that hasn't happened in iron ore for 15 years and in my view is highly unlikely to occur in copper either.” By September, Aitken said Regal expects BHP and CBA to both trade at $100 within five years, while noting the firm prefers some of its copper and AI exposure through less crowded channels.

What the FY26 result changed

Pendal Group's August newsletter captured how quickly the narrative had turned. Pendal noted BHP beat FY26 underlying earnings estimates by 4 per cent on better-than-expected costs at Escondida, generated US$10 billion of free cash flow and cut net debt to US$8.7 billion. A year earlier, Pendal observed, BHP was cutting capex and flagging asset sales. The manager now sees growth well funded by higher copper prices and does not expect the recent re-rate to reverse in the near term.

Plato Investment Management highlighted margins, saying in an August presentation that BHP is earning around 70 per cent on copper, above iron ore margins of 61 per cent, and that the company continues to take costs out of the business. Tamim added that the FY26 dividend of US$1.72 per share represented a 72 per cent payout ratio, and that net debt fell by more than US$4 billion while BHP lifted its dividend and spent heavily on growth. Solaris Investment Management reported that its overweight position was among its top income contributors after the dividend came in above market expectations.

The skeptics: an AI trade or a tariff trade?

The sharpest counterpoint comes from Auscap. In its October quarterly report, Auscap said BHP is trading far more like a copper company than an iron ore company, even though iron ore constituted more than half of group EBITDA and cash flow in FY26 after adjusting for minority interests. Auscap pointed out that AI and data centre demand is on track to account for only a little over 4 per cent of global copper demand in 2026, and argued the correlation between strong copper prices and rapid AI development may be coincidental rather than causal.

Auscap's alternative explanation centres on trade policy. Speculation that the US will impose tariffs on imported copper from the start of 2027 has driven US stockpiles up more than tenfold in 18 months, according to the manager, and historically a decline in inventories has been associated with copper price weakness. “There is a chance that in fact the recent copper trade is a tariff trade disguised as an AI trade,” Auscap wrote, adding that it is cautious on associated exposures. In a September presentation, Auscap said it remains constructive on copper over the next decade, but described much of BHP's recent move as multiple expansion rather than earnings growth.

There is a chance that in fact the recent copper trade is a tariff trade disguised as an AI trade.

— Auscap Asset Management, Quarterly Report, October 2026

That tariff sensitivity has already shown up elsewhere. PM Capital's September monthly report noted copper equities sold off on reports that the White House was weighing the cost of refined copper tariffs for US manufacturers, and said it had meaningfully reduced its copper exposure earlier in the quarter.

Iron ore is the other half of the debate. Auscap expects further downward pressure on iron ore prices as new supply from African mines arrives over the next 18 months to two years, and Blackwattle Investment Partners pointed in July to the ramp-up of Simandou in Guinea, a prolonged China property downturn and the purchasing power of the China Mineral Resources Group. Pendal, which is underweight and notes BHP is excluded from its investable universe due to coal exposure, offered a more balanced read in September: early signs of supply discipline are emerging, with three Brazilian producers curtailing output, and the steep cost curve suggests lower prices are likely to drive a market rebalancing over time.

Execution risks: Escondida grades, Jansen and the capex bill

Tamim's August deep dive is the most detailed account of what could go wrong. FY27 copper guidance of 1,650 to 1,800 thousand tonnes sits more than 150 thousand tonnes below FY26 output because of grade decline at Escondida, which Tamim described as a structural feature of ageing orebodies rather than a cyclical dip. The fix, a new Escondida concentrator, is years away, with a possible final investment decision in calendar 2027 or 2028. Capital and exploration spending is guided at about US$11 billion for FY27, which Tamim said constrains flexibility if prices soften.

Tamim also gave the Jansen potash project a full hearing. Stage 1 is now estimated at about US$8.4 billion, up from US$5.7 billion at approval in 2021, while the Stage 2 estimate rose 41 per cent to US$6.9 billion with first production pushed to late FY2031, prompting a US$2.3 billion impairment. Tamim's broader point was that large greenfield mining projects persistently cost more and take longer than approved, and that investors should read BHP's future growth commitments with that history in mind. The manager also flagged that new chief executive Brandon Craig may bring a portfolio review, and that the dividend will fall when commodities fall: “The payout ratio is a cycle outcome, not a promise.”

Valuation splits the register

With the strategy broadly endorsed, most of the disagreement in September came down to price. ClearBridge Investments said it liked BHP's strategic direction and copper exposure but stayed underweight while valuation looked too expensive, adjusting the position as the price moved closer to its fair value assessment. Australian Eagle Asset Management's CIO Sean Sequeira said BHP remains the fund's largest position at 6.25 per cent of the portfolio, but he does not see the stock as necessarily cheap relative to its own history and is looking for similar resource exposure elsewhere.

Ten Cap's Jun Bei Liu trimmed after a strong August, judging further upside limited and preferring gold and copper miners with greater earnings leverage, and Alliance Bernstein said in July it had taken profits following outperformance. Cadence Capital went the other way, building a position after the September pullback on the view that the stock remains in a defined upward trend. Investors Mutual Limited used the volatility to write options over its holding, and Tamim continues to hold BHP as a long-held core position, describing it as a deliberate counterweight to a portfolio weighted towards the digital economy.

What managers are watching next

The thesis now hinges on a short list of questions. For the bulls, it is whether copper's structural deficit keeps supporting prices long enough for BHP's growth pipeline, including Escondida, the Vicuña district in Argentina and the Ministers North iron ore project in the Pilbara, to deliver the copper equivalent production growth of about 3 to 4 per cent a year that Tamim cites from management guidance. For the skeptics, it is whether US copper stockpiling unwinds after tariff decisions and whether new African iron ore supply weighs on the half of the business that still funds the pivot.

In between, managers are tracking execution: Jansen Stage 1's first production in mid calendar 2027, the Escondida concentrator decision, capital discipline under a new chief executive, and whether the payout ratio holds as the cycle turns. As Auscap framed it, the real question is whether the copper price can be sustained, can go higher, or carries risks to what has happened to date.