BHP Group Ltd (ASX: BHP) shares has been one of the best sources of dividends in the mining sector over the last two decades.
BHP is one of the world’s largest miners with its iron ore and copper projects. It also has coal mines and a potash project under construction in Canada.
Factors affecting my thoughts
The world always needs resources to build houses, commercial buildings, energy grids, vehicles, advanced products and so on.
BHP supplies what the world needs and it makes a lot of profit doing so. However, there can be significant changes in resource prices on modest shifts in supply and/or demand.
The ASX mining share is a great way to ‘play’ commodity prices change. The phrase ‘buy low, sell high’ may be a cliche, but it can be very effective to make moves at different points in the resource cycle. Chinese demand for iron ore is not consistent each year.
We should also remember there could be an increase in iron ore supply from the Simandou project in Africa, partly owned by Rio Tinto Ltd (ASX: RIO). For me, that could be a problem for iron ore miners if African iron ore production continues growing. I was (positively) surprised to see the iron ore price reached more than US$110 per tonne recently, though it has quickly reversed back to around US$100 per tonne.
I’m somewhat pessimistic on BHP’s iron ore earnings, but I’m very positive on how its copper earnings could grow.
There are a variety of drivers of sending the copper price up over time, including expanding cities and electricity grids, electric vehicles, digitalisation, more electric products and supposedly increasing difficulty in finding high-quality, easily-accessible, low-cost copper deposits.
Is the BHP share price a buy with $5,000?
The ASX mining share is 10% cheaper than it was in mid-June, but I wouldn’t say it has dropped enough to be good value. BHP is a great miner, but I’d want to be more confident of achieving long-term capital growth by investing at a cheaper point. The copper exposure is very promising for the long-term – it’s one of the commodities that’s always in demand and could see growing demand in the years to come. I’d be happy as a long-term shareholder.
I don’t know if/when that better valuation will happen, but we don’t have to buy BHP shares right now. We can wait or choose one of the other appealing ASX dividend shares.
