Due the the downturn in the recent month in the economy caused by coronavirus BHP has seen a significant decline in their price since January’s high of $41.7. Their stock has now fallen to 27.1 as of the 20/03/2020 which is a 35% decline in a month and is expected to fall further as a result of this virus. However there are some key fundamental factors about BHP that present them as a buying opportunity during this health crisis. These factors include the price of iron ore, the recent USD strength and the fiscal stimulus announced by the Australian Government on 22/03/2020.
The global virus pandemic has brought about many travel and transportation changes which has significantly affected the aviation industry but if you look at the maritime satellite feed it highlights that maritime and shipping industry has not been affected as largely as ports are shipping and continuing to run. Which means BHP can continue to operate their business in a virus environment. To confirm this BHP chief executive officer Mike henry said march 19th ‘Encouragingly, there is increased activity in China as regions are ramping up production with strong government support’. Already BHP are hiring an additional 1500 workers to ensure their mines are operating at full capacity.
The Iron ore price is currently at 89.79 per metric tone which is well above BHPs cost per metric tone which is 25.8. These strong margins on iron ore simply highlight how BHP are undervalued at these current levels.
The USD has seen a significant rise during the coronavirus as individuals rush towards cash during these uncertain times. In January this year 1 Australian dollar was worth 70 US cents compared to the current rate of only buying 58 cents. This benefits BHP significantly as they are exporters receiving payment in USD for exporting iron ore and other minerals, then converting it back to AUD at a large profit.
The Australian government has announced that they are committed to supporting Australian businesses though this health crisis by committing 17.6 billion dollars to combat COVID 19. These include large tax breaks that would help lower BHP’s operating costs.
Here is a Video Message from BHP’s CEO