In a bold move set to potentially reshape the global mining landscape, BHP Group (NYSE: BHP), the Australian mining giant, has launched an all-share takeover offer for Anglo American, valuing the latter at £31.1 billion ($38.9 billion).
The bid, confirmed by both companies, follows BHP’s proposal to merge with Anglo American, involving a significant premium per share. If successful, the merger would create the world’s largest mining company, commanding around 10% of the global copper output, according to Reuters analysis.
Anglo American, with mining operations spanning countries such as Chile, South Africa, Brazil, and Australia, initially announced that its board was assessing BHP’s “unsolicited, non-binding and highly conditional combination proposal.” According to UK takeover regulations, BHP has until May 22 to present a definitive offer.
If the proposed deal materializes, it would form an entity accounting for approximately 10% of the world’s copper production, cementing its position in the market for this highly coveted metal.
Under the terms of the proposal, Anglo American shareholders would receive 0.7097 BHP shares for each Anglo American share held. The offer represented a premium of approximately 31% on Anglo American’s current share price, reflecting a value of £25.08 per share.
The potential merger signals a strategic move by BHP to strengthen its position in key commodities, particularly copper, amid rising demand projections driven by factors such as the global energy transition and the burgeoning electric vehicle market.
Anglo American Platinum and Kumba
BHP, if ultimately successful in its bid, stands to gain more copper, potash, and coking coal assets, which are crucial to its strategy, while Anglo’s copper output, combined with BHP’s operations in Chile and Peru, would surpass that of major competitors like Freeport-McMoRan and Codelco.
Increasing demand for copper, driven by advancements like artificial intelligence, automation, and the energy transition towards electric vehicles and renewable energy, has led to a surge in copper prices. BHP aims for copper production of 1.7-1.9 million tons, while Anglo’s projection for 2024 is 730,000 to 790,000 tons.
As part of BHP’s proposal, Anglo would need to demerge its stakes in South Africa-based Anglo American Platinum Limited and Kumba Iron Ore Limited, valued at $7.44 billion and $5.4 billion respectively. Additionally, Anglo owns 85% of De Beers, and BHP plans to review its other diamond operations post-deal.
In South Africa, major mining investors are delaying new projects due to declining profits from challenges and falling commodity prices, especially in platinum.
However, regulatory scrutiny may arise concerning the merger’s impact on the global coking coal market, as both companies hold significant assets in Australia’s Queensland state.
Over the past year, Anglo American has experienced a 12% decline in its shares, resulting in a market capitalization of approximately £27 billion ($34 billion). Meanwhile, BHP, listed on both the London and Sydney stock exchanges, boasts a market capitalization of around $149 billion.
Anglo American’s financial performance took a hit in 2023, with a significant decrease in profit leading to a reduction in dividends. The company attributed this to a downturn in the prices of its primary commodities. Notably, it recently marked down the value of its De Beers diamond unit by $1.6 billion and substantially revised its copper production targets downward. Additionally, Anglo American has proposed workforce reductions, including 3,700 job cuts across its South African platinum operations, and has recorded asset impairments in its nickel segment.
Offer rejection
Anglo American officially declined the offer on Friday, stating that it “significantly undervalues Ango American and its future prospects,” and that it “contemplates a structure which the Board believes is highly unattractive for Anglo American shareholders.
The BHP proposal is opportunistic and fails to value Anglo American’s prospects, while significantly diluting the relative value upside participation of Anglo American’s shareholders relative to BHP’s shareholders. The proposed structure is also highly unattractive, creating substantial uncertainty and execution risk borne almost entirely by Anglo American, its shareholders and its other stakeholders,” commented Stuart Chambers, Chairman of Anglo American.
This statement however was followed up by the comment that there is no certainty that a firm offer will be made by BHP for the company.
Following its acquisition of copper miner Oz Minerals in 2023, an agreement with Anglo American would mark BHP’s second significant takeover in just a year. This bid contributes to a flurry of global merger and acquisition activity, exemplified by gold giant Newmont’s $16.8 billion acquisition of Australia-based Newcrest Mining towards the end of last year.
The proposed merger also comes against the backdrop of increased consolidation in the mining sector, driven by companies seeking to secure critical resources and capitalize on emerging market trends. Analysts suggest that the deal could trigger further industry consolidation, given the potential synergies and market dominance it would create.
While the proposed merger has garnered attention for its potential to reshape the mining sector, uncertainties remain regarding regulatory approvals and shareholder reactions. Nonetheless, industry experts anticipate that the deal, if completed, could mark one of the largest mining acquisitions in recent history and significantly impact the global mining landscape.
Information for this story was found via Bloomberg, CNBC, Barron’s, Hellenic Shipping News, and the sources and companies mentioned. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
