BHP, the world’s largest miner, has offered to buy Anglo American in a $39 billion deal that would create a copper giant. The proposed merger comes amid a surge in demand for copper, a key metal in the green energy transition. BHP’s offer reflects a growing trend of consolidation in the mining sector, as companies jockey for position to meet the rising demand for copper, a vital material for electric vehicles, renewable energy infrastructure, and other clean technologies.
Scrutiny on the Horizon
The BHP-Anglo American deal is likely to face intense scrutiny from regulators worldwide, particularly concerning antitrust concerns. The combined entity would control a significant share of the global copper market, potentially leading to higher prices for consumers. Additionally, the deal could face opposition from governments in countries where Anglo American has significant operations, like South Africa. The South African minister of mineral resources has already voiced concerns about the potential impact of the merger on the country’s mining industry.
Copper Frenzy Drives BHP’s Bid
BHP’s bid for Anglo American is primarily driven by its desire to increase its exposure to copper. Anglo American boasts a strong portfolio of copper assets, including mines in Chile and Peru. If the deal goes through, BHP would become the world’s top copper producer, controlling roughly 10% of the market share.
The focus on copper underscores the growing importance of this metal in the global economy. Copper is essential for various applications, and demand is expected to continue rising in the coming years. BHP’s move to acquire Anglo American signifies the company’s confidence in the long-term prospects for copper.
Anglo American has not yet accepted BHP’s offer. Analysts believe Anglo American is well-positioned to negotiate for a better deal, given its complex structure with numerous partial ownership stakes and various defensive mechanisms, particularly concentrated in its South African assets. Some analysts believe a price of at least £28 per share would be necessary for serious discussions, with a potential bidding war driving the price well above £30 per share.
Battle of the Titans
The proposed BHP-Anglo American merger has the potential to be the biggest shakeup of the global mining industry in over a decade. However, Anglo American shareholders may believe the fair value is closer to the pre-operational issue share price of 2023. Additionally, other potential suitors may be compelled to enter the bidding war at the current price point.
While regulatory hurdles are a major concern, BHP could face other challenges beyond regulatory scrutiny. Berenberg analyst Richard Hatch believes BHP might be buying a group of assets that require significant work, referring to Anglo American’s South African operations. In Hatch’s view, this could limit BHP’s upside at the current valuation.
Fitch Group’s Perspective
Fitch Group believes BHP is likely drawn to Anglo American’s low valuation, with the company’s stock down 12% over the past year, and its ongoing operational restructuring. From a strategic standpoint, bigger is seen as better in the metals and mining sector.
Some investors have expressed concerns about the deal. Legal & General Investment Management, one of Anglo American’s top 20 shareholders, called BHP’s approach “highly opportunistic” and “unattractive.” Additionally, they argue that further consolidation within the industry would not accelerate investment in the way they believe is necessary.
Source: Mining.com
