BHP Group Ltd (ASX: BHP) is one of the largest mining companies in the world. With a market capitalisation of $96.59 billion and over 62,000 employees, BHP has been a household name in Australia since its founding back in 1885 in Broken Hill, NSW.
Looking at the BHP share price over 2018, it seems to fit the very definition of a rollercoaster. For most of last year, the BHP share price has seesawed between $30 and $34, with the past week providing the latest swing. On January 8, 2019, the share price was trading at $34.43; by January 10 it had hit $32.68. Although this can be attributed to the company's special dividend window closing, it sure has been a bumpy ride.
However, I am extremely bullish on BHP shares in 2019, for two reasons:
Firstly, BHP is one of the lowest-cost producers of iron ore, coal, petroleum and copper in the world. When he took the reigns of BHP in 2013, CEO Andrew Mackenzie outlined a plan of cost-cutting and efficiency for the company, which he has been successful in executing. This revolved around BHP refocusing on its four key commodities of iron, coal, petroleum, and copper, with its other interests such as zinc, lead, silver, and aluminium spun off in 2015 into a separately-listed company South32 Ltd (ASX: S32).
By refocusing on these four core commodities, BHP has successfully lowered its cost-base for production even further and now boasts one of the leanest business models in the industry. This means shareholders are poised to benefit substantially from any price rises in these commodities, with management promising to keep their payout ratio at 50% or above going forward.
Secondly, these four commodities that underpin BHP are all essential commodities for global growth. Demand for iron ore and coal from China over the past decade has been almost insatiable, providing over 52% of BHP's revenue in the 2018 financial year. The company should continue to profit in the same way from the rise of other emerging markets in the years and decades ahead.
Additionally, as one of the largest copper miners in the world, BHP should be an enormous beneficiary from the trend towards electric vehicles, which require a tremendous amount of copper in their production compared with traditional internal combustion vehicles. BHP is planning to capitalise on this, with a 20% increase in funding for copper exploration, up from $44 million in 2017 to $52 million in 2018.
Although mining companies' earnings can dramatically fluctuate with changes in commodity prices, BHP is currently trading with a forward P/E of 12.8, which I think is an attractive entry point.
Foolish takeaway
For these reasons, I believe this Australian icon is an excellent long-term hold for the long-term investor. Although the window for BHP's January special dividend is now closed, I am confident that the company's lean business model and grossed-up dividend yield of 6.8% going forward will deliver excellent returns into the future.
