Shares in BHP (ASX:BHP) will come under pressure on the ASX on Friday after it confirmed it had made an unsolicited all-paper takeover offer for Anglo American, with a value of around $60 billion.
BHP shares closed at $45.23 (down 10% year-to-date) on Wednesday before Anzac Day, for a market value of $A229 billion.
Shares of Anglo American jumped more than 4% in after-hours trading in London on Wednesday and surged another 13% on Thursday after news of the BHP approach emerged late the previous day.
BHP confirmed the approach in a statement released on Anzac Day to the London Stock Exchange. The shares were down more than 2% in London trading on Thursday.
Under its proposal, BHP stated that ordinary shareholders of Anglo American would receive 0.7097 BHP shares for each ordinary share in Anglo American, as well as ordinary shares in Anglo Platinum and Kumba Iron Ore.
Based on the closing market prices as of April 23, 2024, BHP’s proposal values Anglo American ordinary shares at 25.08 British pounds ($48.10) each, and Anglo American’s share capital at 31.3 billion British pounds ($60.03 billion).
Anglo stated that BHP will bid once Anglo has divested its South African platinum and iron ore businesses. It essentially desires Anglo’s copper mines, along with iron ore in Brazil, coking coal in Queensland (near BHP’s 50%-owned coking coal joint venture with Mitsubishi of Japan), and a significant amount of copper.
Anglo reported copper production last year of 826,000 tonnes, lower than a previously forecast range of 830,000-870,000 tons. Mining and production issues saw the company leave its 2024 copper output guidance at 730,000-790,000 tons. That 100,000-tonne drop this year is expected to be repeated next year. Getting control of this would boost Rio’s global copper output to close to 2.5 million tonnes a year, or around 10% of annual world output and by far the largest producer in the world. Anglo controls Anglo American Platinum, so spinning that off would be might be easy, as would Kumba Iron Ore with nationalism on the rise in South Africa ahead of elections in late May.
Platinum is no longer a glamour metal with the rise of electrified vehicles, and Kumba Iron ore has just cut its projected production targets because of sabotage and other criminal activity disrupting the state-owned railway with its main port. Kumba produced just over 36 million tonnes of iron ore last year (but has trimmed its expansion to little more than a repeat of that performance this year).
Interestingly, BHP does not want Anglo to sell its Brazilian iron ore business, where it competes with Vale, BHP’s global rival (BHP also has a 50-50 joint venture in the Samarco pellets business with Vale). Anglo exports around 24 million tonnes from its mines in Brazil.
The ANC government is losing ground and complicating matters; former President, the disgraced Jacob Zuma, and his new party, Umkhonto weSizwe (MK), are in line to become the country’s third-biggest party after the May 29 poll, pushing a policy of nationalizing all businesses in the country.
Anglo still has an 85% stake in the DeBeers diamond business, which has just reported very poor results.
Anglo’s major shareholder is South Africa’s state pension business, and selling this prized asset will be very, very hard to see, even if it will get a stake back in BHP. That side of the deal would be strongly opposed by Australian and London-based shareholders, who would face a dilution of their influence.
If this deal happens, it will be the second time in more than two decades that BHP has made a major deal in South Africa. The previous deal was the purchase of Billiton back at the turn of the century—a takeover that ended up adding nothing to BHP, and all the Billiton assets have been sold off or placed into South32, which contains the remnants of BHP and Billiton's aluminum and alumina and manganese assets—and sold out of the former Billiton thermal coal mining operations in South Africa. The Billiton deal was announced in early 2001. By 2014, BHP had split itself in two, moved to a dual-listing situation based in Australia and London, and then ended that wasteful mechanism in 2022, with all the shares transferred to the ASX and the full weight of the company’s value of more than $200 billion and the number 1 ranking in global mining.
BHP last year paid $9.6 billion for OZ Minerals, which has substantially boosted its investment in copper and gold and led the company to head down the route of turning its new Copper South Australian business into its third major asset after the Pilbara iron ore operations and the copper mines and processing operations in Chile, centered on the giant Escondida mine (which was acquired back in the 1980s when BHP bought Utah Mining, with its central Queensland high-grade coking coal mines and reserves).
The deal, if it happens, will have to get approvals in many countries, but the ones to look for are South Africa and China, with the latter probably deciding on the offer. The Chinese government will not like the world’s third-biggest iron ore group taking out the sixth, nor will it like the world’s biggest copper miner becoming significantly larger and more powerful.
