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Why I think the BHP (ASX:BHP) share price is close to being a ‘buy’

The BHP Group Ltd (ASX: BHP) share price has fallen by 14% over the past month. I think that it’s getting close to becoming a buy.

BHP is one of the world’s largest resource businesses in the world, with operations spread across iron ore, copper, nickel and coal. The ASX mining share also has a potash project called Jansen, in Canada.

What’s going on with the BHP share price?

The performance of BHP’s shares and profit is closely linked to the price and expectations for the commodities in its portfolio, particularly iron ore.

Recently, the iron ore price has been dropping as news from China’s economy is not quite as good as hoped after the lockdowns.

Resource prices change every day. But a period of consistent daily declines can quickly cause a noticeable drop in the commodity price, hurting investor sentiment.

For me, a lower BHP share price is more attractive. History shows that commodities do regularly go through downward cycles. But then they usually recover in the months or years after that. Iron ore is no different. I believe that a fall in the iron ore price presents an attractive catalyst to buy BHP shares.

Why I like it as a long-term idea

For starters, the big miner is an attractive dividend payer. It’s one of the world’s biggest ASX dividend shares. I like that shareholders can receive attractive dividend payments through the economic cycle. A lower BHP share price can boost the future dividend yields.

But I also like the direction that BHP’s portfolio is headed.

Copper and nickel are important for the electrification of the world. Electric vehicles need these commodities.

Potash is a very interesting area. It’s supposedly a ‘greener’ fertiliser compared to what is used at the moment. It’s reportedly better for the environment. BHP’s Jansen project could be a valuable asset for decades and generate high margins for the miner. I think it’s a great diversification play away from its traditional commodities.

The world needs these commodities. The only question is what the resource prices will be in the future.

As time goes on, I expect iron ore will become a smaller part of the profit pie, I think BHP can provide more consistent returns and will also be more attractive to investors focused on environmental factors after the divestment of the oil and gas business.

Final thoughts on the BHP share price

While BHP shares have dropped, I think it will need to fall a bit more before I’d call it a buy. Today’s valuation could be a reasonable price, but I’d want to see it fall below $38 for a better margin of safety.

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At the time of publishing, Jaz does not have a financial or commercial interest in any of the companies mentioned.