BHP (LSE: BHP; NYSE: BHP; ASX: BHP) has made a tentative all-share offer valued at £31.1 billion (US$38.8 billion) to take over Anglo American (LSE: AAL) and become the world’s largest copper producer in one of the biggest mining deals in recent years.
BHP has until May 22 to make a formal offer under United Kingdom rules, Anglo said in a release late Wednesday. It said it’s reviewing the proposal, which would require Anglo to separate its majority holdings of Anglo American Platinum (JSE: AMS) and Kumba Iron Ore (JSE: KIO) beforehand.
BMO Capital Markets commented on how the proposed deal targets Anglo’s copper assets estimated to produce 534,000 tonnes of the wiring metal this year versus BHP’s 1.4 million tonnes.
“With South African platinum and iron ore removed, Anglo could retain its Minas-Rio iron ore (mine in Brazil) and potentially metallurgical coal, although interest in (diamond miner) De Beers, manganese and ferronickel would likely be limited,” mining analyst Alexander Pearce said in a note on Thursday. “Given the potential size of the combined entity, particularly in copper, it would be subject to significant anti-trust/competition scrutiny.”
Shares mixed
BHP’s proposal is valued at £25.08 per Anglo share, a 14% premium to Anglo’s closing price on Wednesday. Anglo’s shares rose 13% to £24.99 apiece on Thursday afternoon in London, valuing the company at £33.4 billion. BHP fell 3% to £22.91 each for a company market value of £115.9 billion.
Anglo American has been a takeover target in recent years after output fell and costs mounted. If it occurs, the takeover would give BHP about 10% of global copper production as the price of the electrical component is expected to climb because of increased demand for the energy transition away from fossil fuels. It could also herald more big deals as companies with cash consider merger and acquisition opportunities.
BHP bought copper producer OZ Minerals last year for about US$6.4 billion. Rio Tinto (NYSE: RIO; LSE: RIO; ASX: RIO) has been investing in copper assets in Utah and Arizona, while Glencore (LSE: GLEN) last year attempted to buy Teck Resources (TSX: TECK.A, TECK.B; NYSE: TECK), which has the Quebrada Blanca mine in Chile and the Highland Valley Copper mines in British Columbia.
Dissenting voices
BHP’s offer may not be high enough to satisfy Anglo shareholders, Edinburgh-based consultant Wood Mackenzie said in an emailed note.
“Anglo American shareholders may consider fair value closer to the share price in 2023 before operational issues emerged,” said James Whiteside, metals and mining corporate research director. “Other suitors may be compelled to act at this price”
New York investment bank Jefferies calculated a “fair price” of £28.24 per Anglo share. That’s a $42.6 billion equity value, 28% above the most recent Anglo share price, and “a reasonable starting point,” mining analyst Christopher LaFemina wrote in a note on Thursday.
“Anglo American is an established conglomerate with a complex structure, featuring numerous partial ownership stakes and various defensive mechanisms, most of which are concentrated in its South African assets,” LaFemina said.
Hamburg-based private bank Berenberg wasn’t convinced Anglo’s troubled South African operations could be turned around.
“BHP is potentially buying a group of assets that need some care and attention,” mining analyst Richard Hatch wrote. “This offers limited upside at this point with current valuation multiples that would also imply a slightly dilutive deal for BHP.”
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