Pay dirt: BHP’s bold bid for Anglo American

BHP’s takeover bid for Anglo American, which could be the biggest global resources deal this year, may bring some prized assets into its fold.

BHP, led by chief executive Mike Henry, has made one of its biggest takeover moves. Picture: Aaron Francis

Mining giant BHP has made a dramatic £21bn ($40.5bn) takeover bid for rival Anglo American’s assets in a bold play to reshape its global copper footprint.

BHP confirmed the offer – likely to be the biggest resources deal in several years – to the London Stock Exchange late on Thursday, saying it would offer 0.7097 BHP shares for each Anglo share on issue.

The deal is conditional on the spin-out of Anglo American’s platinum and iron ore assets in South Africa to Anglo’s existing shareholders. BHP said the offer valued Anglo shares at a total value of £31.1bn – but BHP will pay only for the assets it wants.

In total, the offer values Anglo shares at £25.08 each, including £4.86 in Anglo Platinum shares and £3.40 in Kumba shares – effectively meaning BHP is paying £16.82 for the portion of Anglo that it wants.

The two companies delivered about a third of Anglo American’s earnings before interest, tax, depreciation and amortisation in 2023. Anglo American’s global operations booked annual EBITDA of $US10.2bn last year, of which about $US3.7bn came from Kumba and AngloPlats, according to company disclosures.

The London group’s board is currently reviewing this proposal with its advisers, Anglo American said on Thursday. The company’s shares jumped 11.6 per cent in early London trading to £24.58, while BHP’s London listed shares slipped 3.5 per cent, to £22.81.

BHP said in a statement the combination would increase its exposure to future facing commodities, giving the company substantial growth options in South America and a stronger presence in Brazilian iron ore.

“The combination would bring together the strengths of BHP and Anglo American 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,” BHP said in a statement.

“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. These would be expected to generate significant cash flows and the combined entity would have the financial capacity to support value adding growth projects at the optimal time, while continuing BHP’s commitment to shareholder returns.”

The deal, if consummated, would return BHP to a position of being the dominant force in Queensland metallurgical coal, adding Anglo’s Moranbah, Dawson, Grosvenor and Aquila mines to its current BMA assets – now winnowed down after the recent sale of Daunia and Blackwater to Whitehaven Coal. That would deliver another 15 million to 17 million tonnes of coking coal to BHP.

It would also give BHP a fresh foothold in Brazilian high grade iron ore, through Anglo’s Minas-Rio operations, where the company recently acquired a new 4.3 billion tonne resource from Vale, along with an agreement to use Vale’s export infrastructure.

But the real prize is Anglo’s copper assets in Chile and Peru.

Despite a savage downgrade for the company’s copper outlook, which sent shares in the company’s stock tumbling in December, Anglo expects to produce 730,000 to 790,000 tonnes of copper in 2024 – primarily from assets in South America seen as likely to be complementary to BHP’s current presence in the region.

Anglo has outlined a path to producing a million tonnes of copper by the 2030s.

It would also deliver BHP the De Beers diamond operations in Africa.

The key questions for BHP shareholders will be around value for the price on offer, given any deal would again scatter BHP’s focus across higher risk jurisdictions in Africa and South America.

South Africa was a prime focus of the demerger of South32 almost a decade ago.

While the deal would divest Anglo of its South African iron ore and platinum mines, no mention was made of an exit of manganese operations in the country.

That additional complexity in the structure of a merged company would also draw inevitable comparisons with BHP’s ill-fated takeover of Billiton in 2001.

It would also deliver marginal and troubled assets – such as the massive underground potash mine Anglo is building in the UK, and nickel operations in Brazil – that would be of dubious value to BHP.

Anglo has been under growing pressure from shareholders since the copper downgrade in December, with the company seen to be struggling to fund growth opportunities ahead of the expected boom in demand for so-called future facing commodities.

“There can be no certainty that any offer will be made nor as to the terms on which any such offer might be made,” Anglo told investors.

Anglo American has set a May 22 (UK) deadline for a firm intention to make the offer or walk away.

Anglo American, which has coal and manganese mines in Australia, also operates in Brazil, China, Peru, South Africa and UK also produces copper, nickel, platinum group metals, diamonds (through De Beers), and premium quality iron ore and steelmaking coal.

BHP shares on the ASX were last priced at $45.23, with local trading closed on Anzac Day.