BHP(US:BHP)2026-01-20 03:19Summary of Key Points from the Conference Call Industry Overview - The focus is on the Aluminium and Copper sectors within the Australia Materials industry, particularly in the context of the global mining sector [1][2]. Core Insights and Arguments - The copper-aluminium ratio is currently at approximately 4.1x, which is two standard deviations above its 10-year average of 3.5x. This is the highest level since February 2021, when it peaked at 4.3x [2][3]. - Over the past period, aluminium prices have increased by around 80%, while copper prices have risen by about 15%. The rise in prices has been influenced by the Russia-Ukraine conflict [2]. - Recent strength in copper due to supply disruptions, US stockpiling, and tight inventories outside the US suggests that aluminium may also see price increases through substitution if copper demand remains strong. Substituting copper with aluminium becomes economically viable when the ratio exceeds 3.5-4.0x, particularly in applications like heating, air conditioning, and power transmission for electric vehicles (EVs) [2]. - The commodity team projects aluminium prices to reach US$3,250/t by 2Q26, driven by demand outpacing supply, with China's production cap of 45Mtpa remaining in place and Indonesian smelters expected to ramp up production slower than consensus due to power constraints [2]. - South32 (S32) is highlighted as the most preferred investment with approximately 32% FY26e Aluminium EBITDA exposure at spot prices, and it has moved to the 1 position in overall preference [2]. - Rio Tinto (RIO.AX) is rated as Equal Weight (EW) with an 18% spot CY26e Aluminium EBITDA exposure, but is considered fully valued compared to BHP, which is rated Outperform (OW) [2]. Additional Important Insights - The FY27/FY28e Free Cash Flow (FCF) yields for South32 are projected at 3.8% and 9.7%, respectively, despite significant capital expenditures at its Hermosa and SG projects [2]. - Production at the Mozal facility is expected to continue at approximately 560kt, counter to consensus expectations, although higher electricity costs are anticipated [2]. - The report includes a detailed ASX Miners Relative Preference Table, ranking various companies based on their investment thesis, upside/downside potential, and financial metrics [9]. Financial Metrics and Valuation - The report provides a comprehensive overview of valuation multiples and key metrics for ASX miners, including Market Cap, EV, P/E, EV/EBITDA, FCF Yield, and Dividend Yield for various companies [12][14]. - BHP and Rio Tinto are noted for their strong balance sheets and attractive commodity mixes, with BHP having a projected P/E of 14.1 and Rio Tinto at 13.5 for FY26 [12][14]. Conclusion - The aluminium sector is poised for potential growth driven by substitution dynamics and supply constraints, while specific companies like South32 are positioned favorably for investment. The overall outlook for the mining sector remains attractive, with various companies showing strong financial metrics and growth potential.