Bayon Financial

Graeme Cunningham

Independent Insight Provider

Bayon Financial provides industry and company analysis focusing on mid and small cap equity research coverage across a range of sectors including mining, financials and telecoms.

Equity Bottom-Up

BHP Group Ltd operates as an international resources company. The Company offers mineral exploration and production, including coal, iron ore, gold, titanium, ferroalloys, nickel, and copper concentrate, as well as petroleum exploration, production, and refining. BHP Group serves customers worldwide.

<ul>
<li>The copper price has stagnated for four months, struggling to maintain new highs, and recently slumped on reports that the U.S. maybe wavering on implementing more tariffs of the metal</li>
<li>BHP's price implies very aggressive copper price targets which we view as insufficiently incorporating the risks of a weakening AI-boom, low to no additional US tariffs and broader economic cyclicality </li>
<li>There is still significant downside not just to our valuation, which sits at a pre-AI-boom-inventory-imbalance-driven-parabolic-copper-surge level, but even to a moderate midpoint between our conservative outlook and the market price </li>
</ul>


The copper price has stagnated for four months, struggling to maintain new highs, and recently slumped on reports that the U.S. maybe wavering on implementing more tariffs of the metal
BHP's price implies very aggressive copper price targets which we view as insufficiently incorporating the risks of a weakening AI-boom, low to no additional US tariffs and broader economic cyclicality 
There is still significant downside not just to our valuation, which sits at a pre-AI-boom-inventory-imbalance-driven-parabolic-copper-surge level, but even to a moderate midpoint between our conservative outlook and the market price 


BHP: Risk In A Time Of Heroic Copper Assumptions

Rio Tinto Limited is an international mining company.  The Company has interests in mining for aluminum, borax, coal, copper, gold, iron ore, lead, silver, tin, uranium, zinc, titanium dioxide feedstock, diamonds, talc and zircon. Dually-listed company with RIO LN.

<ul>
<li>Production growth in Q2/26 showed some weakness yoy compared to a strong Q1/26, with the aluminum segments mixed, iron ore edging down and copper declining significantly </li>
<li>However, the decline was largely expected by management, and mostly came from temporary technical issues, with output for all divisions roughly inline with guidance</li>
<li>We see less risk from production shortfalls than further declines in iron ore and copper prices, and our valuation is well under consensus and -22% below the market price </li>
</ul>


Production growth in Q2/26 showed some weakness yoy compared to a strong Q1/26, with the aluminum segments mixed, iron ore edging down and copper declining significantly 
However, the decline was largely expected by management, and mostly came from temporary technical issues, with output for all divisions roughly inline with guidance
We see less risk from production shortfalls than further declines in iron ore and copper prices, and our valuation is well under consensus and -22% below the market price 


Rio Tinto: Q2/26 Production Drop As Expected; Looming Metal Price Risks

<ul>
<li>The market appears to be pricing into BHP a continued copper boom and limited downside for the iron ore price, which we view as increasingly risky</li>
<li>While Q2/26 production growth was mixed, we see a lower probability of risk from missed output guidance than a metals price plunge or cost increase from the oil spike </li>
<li>BHP could be a strong short play with major risks from metals prices, a potential jump in costs, and rich valuations, with our estimate -30% below the market</li>
</ul>


The market appears to be pricing into BHP a continued copper boom and limited downside for the iron ore price, which we view as increasingly risky
While Q2/26 production growth was mixed, we see a lower probability of risk from missed output guidance than a metals price plunge or cost increase from the oil spike 
BHP could be a strong short play with major risks from metals prices, a potential jump in costs, and rich valuations, with our estimate -30% below the market


BHP: Metals Price Risks, Cost Pressure and Rich Valuation Overwhelm Output Growth

Shin-Etsu Chemical Co., Ltd. produces and distributes synthetic resins and other chemical products such as fertilizers. The Company also manufactures electronic materials such as semiconductor silicon, synthetic, and rare earth quartz. Shin-Etsu Chemical operates in Japan and overseas.

<ul>
<li>Shin-Etsu Chemical's price slumped after it maintaining full-year guidance in the Q1/27 results disappointed the market, and while overall EBIT recovered, this masked a divergence for the two largest divisions</li>
<li>The continued severe decline in the US housing and PVC-driven Infrastructure segment has been offset by strength in the semiconductor-led Electronics, and smaller Functional, and Processing and Specialized, divisions  </li>
<li>While it has declined to our well-below-consensus valuation, which prices in substantial risk for the major divisions, negative sentiment could persist and the shares stagnate given few immediate catalysts</li>
</ul>


Shin-Etsu Chemical's price slumped after it maintaining full-year guidance in the Q1/27 results disappointed the market, and while overall EBIT recovered, this masked a divergence for the two largest divisions
The continued severe decline in the US housing and PVC-driven Infrastructure segment has been offset by strength in the semiconductor-led Electronics, and smaller Functional, and Processing and Specialized, divisions  
While it has declined to our well-below-consensus valuation, which prices in substantial risk for the major divisions, negative sentiment could persist and the shares stagnate given few immediate catalysts


Shin-Etsu: Slumps Near Valuation After Maintained Guidance Disappoints

South32 Limited operates as a diversified metals and mining company. The Company produces alumina, aluminum, coal, manganese, nickel, silver, lead, and zinc. South32 conducts business globally.

<ul>
<li>While South32 has declined substantially as the Middle East war premium for the aluminum price had dropped, the metal still faces supply constraints from China output limits </li>
<li>We already had relatively low aluminum average prices of US$3,000/tonne, and conservative estimates for South32's other metals, so our forecasts have not changed substantially</li>
<li>The considerable upside to our South32 valuation of 20% is broadly inline with consensus' 24%, contrasting with major downside for BHP and Rio Tinto   </li>
</ul>


While South32 has declined substantially as the Middle East war premium for the aluminum price had dropped, the metal still faces supply constraints from China output limits 
We already had relatively low aluminum average prices of US$3,000/tonne, and conservative estimates for South32's other metals, so our forecasts have not changed substantially
The considerable upside to our South32 valuation of 20% is broadly inline with consensus' 24%, contrasting with major downside for BHP and Rio Tinto   


South32: Value Beyond the Middle East Conflict Aluminum Premium

Independent Insight Provider, Bayon Financial

Mr. Cunningham is a CFA Charterholder with over 15 years of experience as an equity research analyst, mostly on the sell side at investment banks, including Goldman and Jefferies, and with some time on the buy side. He has covered the consumer, telecoms, financials, energy and mining sectors, with a focus mainly on Southeast Asia, including Thailand and Vietnam.

Graeme Cunningham
Independent Insight Provider
• Bayon Financial

BHP: Risk In A Time Of Heroic Copper Assumptions

We believe that BHP's current level assumes aggressive copper prices which insufficiently account for risks of an AI-boom slowdown, global copper...

Graeme Cunningham

Rio Tinto: Q2/26 Production Drop As Expected; Looming Metal Price Risks

We highlighted in this insight the major potential risks to Rio Tinto especially from a potential severe reversal in copper prices

Graeme Cunningham

BHP: Metals Price Risks, Cost Pressure and Rich Valuation Overwhelm Output Growth

We highlighted in this insight what we viewed as rising metals price risks including the 'heroic copper and iron ore price assumptions' being...

Graeme Cunningham

Shin-Etsu: Slumps Near Valuation After Maintained Guidance Disappoints

While after the market was disappointed by the company maintaining sub-consensus guidance in Q1/27 the price has slumped to near our well-below...

Graeme Cunningham

South32: Value Beyond the Middle East Conflict Aluminum Premium

While South32 has declined as the Middle East conflict premium for aluminum drops, it still has substantial upside to consensus and our valuation...

Graeme Cunningham