BHP might have walked away from Anglo American for now, but this isn’t the end of the road

by Admin
May 30, 2024

It could have been one of the biggest deals in recent history — BHP swallowing up Anglo American to the tune of $75 billion.

The jewel in the crown? Anglo’s copper assets.

The proposal was first lobbed by the world’s biggest miner in April.

Technically not a formal offer, but it was the start of the takeover process, which has been back and forth with, no doubt very expensive, lawyers and financial advisors ever since.

The first sticking point was BHP’s valuation of Anglo. So it upped its offer. Twice.

But the second sticking point wasn’t as easy to resolve.

That’s because BHP didn’t actually want all of Anglo’s assets. It wanted Anglo to divest its Anglo Platinum and Kumba Iron Ore businesses as well its diamond arm.

Amid the back and forth, Anglo announced it was proceeding with its own divestment plan, including selling its metallurgical coal mines in Australia.

Last week, the 28-day deadline to make a formal offer, triggered under UK takeover laws by BHP’s proposal, loomed.

With hours to spare, Anglo granted a one-week extension to keep talking with BHP.

It looked promising that maybe the two parties would reach a deal which would see the creation of the world’s biggest copper miner.

Late on Wednesday, BHP gave more detail to the market about what it was proposing to Anglo, including a reverse break fee — in effect saying it would cover any costs if Anglo couldn’t sell the assets BHP wanted it to get rid of, in the way it predicted it could.

Anglo responded by saying it would not provide another extension to keep talks going, and BHP then confirmed it would not make a formal offer and pulled out of the race.

So is this the end of the line? Probably not.

BHP CEO Mike Henry has made it clear that copper will play a big role for the mining giant in the future.(Supplied: BHP/Thomas Graham)

Playing the long game

BHP chief executive Mike Henry has been clear the miner wants to focus on future facing commodities. For it, that’s copper.

Last year, South Australian copper miner Oz Minerals was absorbed by BHP, to the tune of $6.4 billion.

Its mines now complement BHP’s Olympic Dam copper assets.

At the time, Mr Henry was criticised by some for paying too much, but since then, copper prices have soared.

The mining giant also has a majority stake in the biggest copper mine in the world, Escondida, in Chile.

Copper prices have soared, and it’s precisely why BHP wants in on Anglo American.(Supplied: Anglo American via Reuters)

Hayden Bairstow, who is the head of research at the resources-focused investment house Argonaut, says the miner is eyeing off Anglo’s Quellaveco mine, in Peru.

“They’ve clearly orchestrated that they buy copper, it’s their core commodity for decarbonisation, that’s where they want to position themselves long term,” said Mr Bairstow.

“You’ve got great assets within Anglo’s like Quellaveco, which has taken two decades really to get into production.

“I think BHP has recognised that time lag is insurmountable and in a lot of ways there is not much you can do about it to hasten it.

“So I think that’s what’s driven the timeline of moving on Anglo now, given that it’s now into production.”

Hayden Bairstow says the fact Anglo’s copper mines are in production is a big part of BHP’s attraction.(ABC News: Nicholas Martyr)

Mr Bairstow doubts BHP will walk away from that opportunity.

But Mr Henry will have to bide his time as BHP can’t make another tilt at Anglo for six months, under UK takeover laws.

“BHP can come back and come up with a second, new offer effectively, or an initial offer, because they still haven’t put one formally on the table,” Mr Bairstow said.

“When you go through this process and arrive to a level where you’re happy to bid $75 billion for something, you’ve obviously done a lot of work in the background.

“There’s some key assets BHP are obviously keen to get their hands on, within Anglo American.

“I don’t think this story is finished by any stretch the imagination.”

Anglo American has a number of copper mines in South America, including this El Soldado mine in Chile.(Supplied: Anglo American via Reuters)

A question of when, not if

Mining is a very long game, it can take decades to get mines from idea to operation.

With BHP clearly wanting to increase copper’s weight in its portfolio in the global race to decarbonisation, the fastest way it can do that is to buy existing mines.

Mr Bairstow believes there really are only two companies with significant assets that BHP could target: Anglo American, which is now in hiatus for at least six months, and Antofagasta, which mines in Chile.

“I think BHP has pretty well telegraphed that they want more copper, and Antofagasta, Anglo American, these are the big global copper producers that have assets in South America, which is clearly a target area for BHP,” he said.

“So, you’re looking at those sort of two big companies in South America, as likely for BHP, if they are going to try and double or triple the size of their copper business over the next 10 plus years, that they’ll have to go and target.”

Like many other observers globally, he’s waiting to see what BHP does, six months from here.

“I think they’ll probably come back,” Mr Bairstow said.

“It’s just a question of when.”