The BHP Group (LSE:BHP) share price has been quite volatile this week. After releasing the final results for its 2021 financial year, the mining stock surged by almost 10%, only to fall back again later in the afternoon. Despite this volatility, its 12-month performance is still up around 20%. But what’s causing this strange seesaw behaviour? And should I be considering this business for my portfolio? Let’s take a look.
The BHP share price surges on results
BHP’s 2021 financial year spans from June to June. And despite all the disruptions caused by the pandemic, it’s been an incredible year. At least, I think so. With metals like iron seeing their prices explode thanks to disrupted supply lines and rising demand from China, BHP’s revenue stream grew by 80%, reaching $25.9bn. This, in turn, allowed profits to surge by 42% while simultaneously flooding the balance sheet with cash.
With a sudden rise in liquidity, the management team has brought down debt levels by $6bn. And also announced a $2 per share dividend payout, pushing the full-year dividend to a new record of $3 per share. Needless to say, this is all very positive news. So why did the BHP share price see its gains reverse later in the day?
The company is evolving
Beyond the financial results, BHP is undergoing a significant structural change. Firstly, the firm is removing its dual-listing, making its British enterprise a subsidiary of its Australian operations. The management team believes this will make the business “simpler and more efficient”.
In other news, it’s merging its petroleum business with another company called Woodside Petroleum. According to leadership, this deal will “create a top 10 global independent energy company, unlocking value for BHP shareholders”. But it seems not everyone is convinced. Analysts at research firm Morgans have said they expect the Woodside merger to remove growth opportunities rather than create them.
Overall, it seems the reaction is mixed by shareholders. Therefore, I can understand why some investors have decided to use the rising BHP share price as an opportunity to close their positions.
Now what?
As encouraging as BHP’s latest financial results were, they may not be sustainable. The mining company has been a significant beneficiary of rising iron ore prices. However, now that China has introduced government-mandated reduction targets, the metal’s price is expected to fall before the end of 2021. And since the firm is heavily reliant on income from the sale of iron ore, this is bad news for anyone expecting it to maintain its current growth rate.
But over the long term, I believe BHP share price can continue to rise. Its latest potash project in Canada is another addition to its commodities portfolio that improves diversification. And with the structural simplification potentially reducing operating costs, the firm’s margins might be about to increase. Therefore, I am considering adding this business to my portfolio, despite the risks.
