BHP launches huge takeover move for $56b-valued Anglo American, setting the stage for a copper rush

Copper-hungry BHP has handed Anglo American a $59.6 billion takeover offer in a move that could spark a mammoth shake-up of the mining industry.

However, the British takeover target’s sprawling and diverse portfolio could pose a big challenge for the Big Australian.

The BHP all-scrip offer will mean Anglo investors will receive 0.7097 of BHP stock for each share they own. Shares in Anglo on the London stock exchange surged 12.6 per cent in early trade, while shares in BHP sank 3.6 per cent on the same exchange.

If the deal goes ahead it will create the biggest copper producer in the world at a time when the battery metal’s price is surging on supply threats intertwined with a broader shift to decarbonisation-focused commodities.

Anglo American confirmed to The Nightly it had received an unsolicited, non-binding and “highly conditional” all-share merger proposal from the world’s biggest miner.

Anglo’s board is reviewing the proposal and said there was no certainty an offer would be made, while issuing BHP with an ultimatum to make a formal offer by May 22.

BHP’s proposal is contingent on the company first splitting off its South African platinum and iron ore units.

BHP told investors the combination would bring together the strengths of the duo in an “optimal structure”.

“Anglo American would bring its assets and long-term growth potential. BHP would bring its higher margin cash generative assets and growth projects along with its larger free cash flows and stronger balance sheet,” the company said.

“The combined entity would have a leading portfolio of large, low-cost, long-life Tier 1 assets focused on iron ore and metallurgical coal and future facing commodities, including potash and copper.”

BHP highlighted the increased copper exposure as its first bullet point in detailing the benefit to shareholders.

A bid that values Anglo at $US42.6b ($65b) might get a deal across the finish line, global investment bank Jefferies told clients.

Anglo’s shares have dropped 12 per cent over the past 12 months, giving the company a market value of £29 billion ($56b) before BHP lobbed its offer, meanwhile BHP is worth nearly $230b.

Anglo’s operations in Australia comprise of five coal mines in Queensland.

BHP offloaded two Queensland coal assets in partnership with Mitsubishi for $4.1b last year, and said in February it would not invest further in its Queensland coal business.

Anglo also owns a large nickel operation in Brazil, which it recently booked a $1.2b impairment against, and controls a hefty stake in Canada Nickel.

BHP increasing its nickel exposure would also be at odds with its decision to potentially place Nickel West into a period of care and maintenance within the next few months, amid weak nickel prices due to an Indonesian supply glut.

Anglo has been seen as a potential target among mining majors thanks to its prized South American copper mines — in Chile and Peru — at a time when a large contingent at the top end of the market is looking to elevate their copper exposure.

BHP already has a substantial copper presence in Chile, including the Escondida mine that is the largest copper producer in the world.

However, Anglo’s attractiveness has been dulled by its complicated structure and exposure to a basket of other commodities that are broadly unappealing in the current environment, on top of deep links to South Africa.

Anglo has a long and complicated relationship with South Africa, where the state pension fund manager is its biggest shareholder.

Anglo has faced a series of significant operational and commodity price setbacks over the past year, driving down its valuation which in turn has now left it vulnerable to peers mounting takeover attacks.

A successful takeover by BHP would represent the first mega deal among the world’s biggest diversified miners in more than a decade.

BHP and its biggest rivals spent years on the sidelines after a series of disastrous transactions, including the Big Australian’s ill-fated merger with the Anglo–Dutch miner Billiton in the early 2000s.

BHP’s appetite for big deals has returned recently after last year acquiring fellow ASX-listed copper producer OZ Minerals for about $9.6b. But it has otherwise focused on selling assets such as oil, gas and coal in the past decade.

Both BHP and Anglo are also growing their footprint on the fertilizer frontier — BHP is building a $16.2b potash project in Canada, while Anglo saved a Gina Rinehart-backed potash project in England from being shuttered in 2020.

Anglo’s other operations include the iconic De Beers diamond business.

It is also been speculated that the now-public proposal for Anglo could draw out other potential bidders.

Rio Tinto has also been investing in copper production, while Glencore last year made an unsuccessful offer for Teck Resources, which has a coveted copper business, before eventually reaching a deal for the Canadian company’s coal assets.

“If BHP does indeed continue to pursue this deal, we would be surprised if other bidders do not emerge,” Jefferies analysts said.