Elliott’s Anglo American move may help BHP bid
The emergence of activist fund manager Elliott Management on Anglo American’s share register is a potential complication for BHP, but may also play in its favour.
The emergence of activist fund manager Elliott Management on Anglo American’s share register is a potential complication for BHP, but may also play into one of the core structural changes that BHP’s all-scrip offer for Anglo requires.
Elliott has built up a 2.5 per cent stake in Anglo through derivatives, according to British market disclosures, emerging on Friday with the significant position.
Ironically, it was Elliott Management’s 2017 campaign for BHP to split off its oil and gas assets and shed its dual-listed structure that set the scene for the company to do exactly that only a few years later – which in turn has put BHP in a position to use its own scrip for the Anglo bid.
And although the Paul Singer-led fund hasn’t yet indicated its plans in regard to Anglo, its previous form suggests a push for asset divestments and structural changes could easily play into BHP’s insistence that Anglo clean out its South African iron ore and platinum assets before a merger can occur.
That issue was a particular point of contention in Anglo’s swift rejection of BHP’s bid on Friday, with Anglo chairman Stuart Chambers saying it would create “substantial uncertainty and execution risk borne almost entirely by Anglo American, its shareholders and its other stakeholders”. But BHP thinks it can win over Anglo shareholders on the issue, as well as the South African government.
While South African Mines Minister Gwede Mantashe might have sniffed at the prospect of a takeover of Anglo at first blush, BHP thinks it has strong arguments that both shareholders and South Africa may be better off if Anglo’s shareholdings in Amplats and Kumba were traded more widely.
It’s worth remembering that, despite recent troubles, both are wildly profitable when commodity prices are up.
Tumbling prices in 2023 meant that Anglo’s platinum and palladium metals group delivered only $US1.2bn of its underlying EBITDA of $US10.2bn. But in 2022 its EBITDA contribution was more than $US4.4bn.
And despite rail constraints that have forced Kumba’s management to stockpile iron ore, the massive mine still produced 35.7 million tonnes in 2023, which is more than respectable even by Pilbara standards. It delivered EBITDA of about $3.7bn.
Kumba represents a major issue for BHP in its takeover. The company is clearly keen on adding to its Brazilian presence through Anglo’s Minas-Rio operation, which delivers high-grade pellets to the market.
Adding Kumba as well would almost certainly cause competition concerns. It could lift the total output of mines controlled by the company to close to 330 million tonnes a year – challenging Rio as the world’s second largest producer of the steelmaking material, a move unlikely to be welcomed in Beijing.
But more important for BHP’s pitch to the South African government and Anglo shareholders is the argument that it would allow a greater share of the profits from both Amplats and Kumba to be reinvested in their own businesses.
Anglo owns 69.7 per cent of Kumba’s shares, and 79 per cent of Amplats. Right now the profits from both are helping support Anglo’s growth in South America, the development of its Woodsmith polyhalite fertiliser project in Britain, and projects elsewhere in the world.
Rather than that, Kumba’s profits might well be better deployed on restoring the lost capacity caused by problems at state-owned rail operator Transnet.
Divesting its stake in Kumba was already canvassed by Anglo back in 2016, under the leadership of Mark Cutifani, but was pushed off the table by a commodity price recovery.
BHP clearly thinks the idea still has merit, and is one that the Anglo board might consider itself if it didn’t need the rivers of cash flowing from the mine, and was better prepared to deal with the complex politics needed to get the idea over the line in South Africa. That argument may also hint at the interest of Elliott Management in Anglo. BHP is signalling that it is not concerned with the emergence of the activist fund on Anglo’s register which, like other hedge funds, might just see a chance for arbitrage trading on the takeover bid.
But if reports indicating that Elliott has spent months building up its stake are correct, any plans drafted by the activist investor from its usual playbook could also sit nicely along with BHP’s takeover proposal.
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