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The BHP share price soars after strong FY21 report. Is now the time to buy?

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The BHP (LSE: BHP) share price gained some serious momentum on Tuesday. At the time I’m writing, the share price has jumped by around 7% and has risen by 32% since this time last year. 

The rise in price has followed the release of BHP’s very solid looking FY21 report. Here’s why I’m considering buying shares in this blue chip FTSE 100 share. 

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BHP profits jump by 80%

BHP Group is a global resources and mining company involved in producing commodities such as metallurgical coal, copper, uranium, and iron ore. According to BHP Chairman Ken MacKenzie, BHP’s diversified portfolio is one of the reasons why its FY21 report is so strong.  

The company’s profits from operations has risen to US$25.9bn, up 80% from 2020, and net operating cash flow was up by 73% to US$27.2bn. BHP has also managed to reduce net debt by more than half from US$12bn in 2020 to US$4.1bn in 2021. 

The company is rewarding investors on the back of these results. The BHP board announced that shareholders will receive a record final dividend of US$2 per share. This brings BHP’s total return to shareholders to over US$15bn for the past year. 

The FY21 report also said that BHP is continuing with its plan to avoid future high carbon emission penalties by offloading its petroleum business to Woodside Petroleum. This could avoid any potential losses if petroleum reserves become an obsolete asset. 

I think these factors are good indicators for investors that BHP could continue to be a world leader in the mining resources industry. On top of that, the dividend share increase is a tempting incentive for me as a passive income investor. 

Risks for the BHP share price

There could, however, be a stunt in BHP’s revenue growth as China is planning to reduce emissions and costs from importing iron ore. For instance, China’s biggest steel producer, Baowu, has announced that it plans to cut production. Not to mention this could also be part of a much larger trade war between Australia and China. 

While the price of iron was holding above US$200 per tonne between May and July this year, China’s steel squeeze has been followed by a drop in the price of iron to US$167 per tonne. As China is one of the biggest export targets for Australia, this could seriously hurt Australian-owned BHP. 

Time to buy?

I’m tempted to make an investment based on BHP’s outstanding FY21 report, because it could be set for another year of high performance. But, the cut-back in iron ore is a major concern for me as China has a strong influence on the Australian export market. Iron ore pulls in the highest amount of revenue for BHP. It accumulated to US$34bn between 2020 and 2021. Therefore, I’m unwilling to invest until the effects of China’s pullback are realised. 

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John Town has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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