Our biggest miner BHP reported yesterday, and its CEO came with a stack of warnings about China, unions and the Albanese Government. However, the ultimate test i.e. what the stock market thought about its performance and its outlook, meant its stock price rose 1.25% to $41.35. In fact, over the past week, its share price is up 3.53%, defying the negative stories we’ve seen recently.

“For the record, BHP reported an underlying profit of $US13.7 billion ($20.22 billion) on Wednesday, beating consensus estimates by 4 per cent,” The Australian’s Cameron England reported. “Full year revenue increased 3 per cent to $US55.7 billion, while statutory net profit fell 39 per cent to $US7.9 billion, largely due to the $US2.7 billion write down of Western Australian nickel and a $US3.8 billion charge related to the Samarco dam failure.”

A simple summary could be its biggest challenges come from the politically red zone — labour, Labor and China! However, the company could be portrayed as a blue chip company that has been beaten up by the stock market, so it could be in the buy zone, despite the threats from the ‘red zone’!

This chart over the past year shows how a lot of the bad news that CEO Mike Henry shared with shareholders has already been factored in and that kick up of the stock price recently could be a positive pointer for the future.

BHP

Ahead of yesterday’s report, company analysts tipped a 9.4% rise in the share price to a target of $45.25 against a current price of $41.35.

The table below shows six out of six experts like the company going forward, with Morgans the most enthusiastic with a 18.98% rise tipped, while Macquarie only sees a 1.57% rise.

Macquarie might take Mike Henry’s warnings more seriously. Here they are in a nutshell:

1. Labour costs are the chief concern.
2. No offsetting productivity gains are expected.
3. The Government’s support for Same Job, Same Pay laws will mean union actions are expected, which will also add to costs.
4. The Mining and Energy Union has filed 10 applications under the laws to date across BHP’s coal operations while the Australian Manufacturing Workers Union has filed three.
5. Geopolitical problems won’t help global growth and what they supply.
6. China’s demand for steel isn’t expected to rise.

But there was some good news, with India and Southeast Asia demand looking positive and the company’s copper play looks set to help the company’s bottom line. Henry also thinks some high cost suppliers will leave the market, which will favour BHP as the lower cost iron ore producer in the world.

Despite the listed challenges above, the company looks set to do OK, even with iron ore prices down to around US$100 and the outlook more negative for prices.

However, lower prices for iron ore doesn’t help the Albanese Government’s budget deficit. Taxes on BHP profits are a great benefit for the country’s fiscal position, so when BHP delivers lower profits, the Government loses out too.

Sure, BHP’s success benefits its shareholders most but the threats from labour-led unions and the Labor Government will hurt potential profits and then tax collections.

Timing is everything and one has to wonder if these hits to BHP might have been better-timed when the iron ore price was a lot higher.