A Bloomberg report overnight suggested BHP had expanded its deal-making team and was interested in pursuing a transformational transaction.

The report comes ahead of a shareholder vote tomorrow on the unification of BHP's corporate structure.

Shareholders are expected to approve the move, which will see shareholders of BHP Plc receive shares in BHP Limited on a one-for-one basis.

The company expects unification to be completed by the end of January, after which it will look to complete the merger of its Petroleum division with Woodside in the June quarter.

The moves are part of a reshaping of BHP's portfolio, which has also included the divestments of BHP Mitsui Coal and its stake in Cerrejon, and the acquisition of a stake in the Kabanga nickel project in Tanzania.

BHP has previously suggested unification will make M&A easier.

According to Bloomberg, sources said the company was evaluating rivals including Freeport-McMoRan and Glencore.

"In our view, we can see the strategic rationale for BHP to study such transactions," RBC Capital Markets analyst Tyler Broda said.

"BHP is consistently positive on its outlook for copper and nickel in particular."

RBC said BHP's balance sheet was deleveraged and its portfolio mix post the petroleum deal was expected to comprise 57% iron ore, 22% copper, 12% coking coal, 4% thermal coal, 3% nickel and 2% potash on a net asset value basis.

"This means its future facing metals exposure accounts for only one third of the company," Broda said. 

"Mike Henry has not been afraid to show leadership in pursuing transformational changes for BHP (unification, petroleum spin, coal sales) and we believe investors are supportive thus far.

"With the size and scale of the iron ore business, even in a weaker long-term price environment, meaningful diversification will need to come inorganically.

"With an EV of US$180 billion BHP realistically would have financial capacity to pursue most imaginable deals (RBCe 2022 EBITDA is $34.7 billion, meaning say transitory 3x leverage would be circa $100 billion in capacity)."

RBC noted Glencore's EV is $104 billion, Freeport's is $77 billion and it values Vale's base metals business at $18 billion, comprising 52% nickel and 48% copper.

"However, the practicalities of any of these deals would be highly complicated, and especially in copper, likely to run into anti-trust challenges," Broda said.

"We think that either Glencore or Freeport would make a solid strategic fit - as would Anglo American or parts of Nutrien and a list of smaller copper or nickel producers/developers - but none of these major companies have stressed balance sheets; so in the current environment top price would need to be paid (this said, a 30% premium to current prices for Glencore would leave the company still trading under fair value based on our current estimates).

"It is also unclear what BHP would bring to Anglo or Glencore shareholders with Anglo having superior growth and Glencore's differentiated portfolio already providing high levels of diversification."

Broda said while he could see a deal happening, it would take months given the magnitude.  

BHP reports strong iron ore production

BHP reported half-year production this morning and unlike peer Rio Tinto, it managed to increase iron ore production by 6% year-on-year to 129.4 million tonnes attributable, or by 5% to 144.4Mt on a 100% basis.

BHP said the result reflected strong supply chain performance, offset by labour constraints and major maintenance.

It left iron ore guidance unchanged at 246-255Mt attributable and 278-288Mt on a 100% basis, with costs expected to come in at the lower end of guidance, despite looming challenges.

"The proposed easing of Western Australia's border restrictions on 5 February 2022 may introduce some short-term disruption to the operating environment," the company said.

Half-year copper production of 742,000 tonnes was down 15% due to

The company expects full-year production to come in at the lower end of the guidance range of 1.59-176Mt.

Queensland Coal production 30.7Mt on a 100% basis, and guidance was lowered from 70-78Mt to 68-72Mt.

Nickel production of 39,300t was 15% lower year-on-year due to maintenance, though guidance was unchanged at 85,000-95,000t.

"Cost control remained strong across the business, in the face of a more inflationary environment," BHP CEO Mike Henry said.

"Unit cost guidance remains intact bar a change to metallurgical coal which is a function of the lowering of production guidance as a result of significant wet weather and in anticipation of Omicron headwinds in the early part of the second half of the financial year."