BHP may need to pay more to clinch Anglo American in copper mega-deal

BHP’s proposal values Anglo American’s ordinary shares at £25.08 ($48.10) each, a premium of 31 per cent to the market close on Wednesday.

James Whiteside, head of mining and metals corporate research at consultancy Wood Mackenzie, echoed suggestions that BHP might need to raise its offer considerably.

“Anglo American shareholders may consider fair value closer to the share price in 2023 before operational issues emerged, and other suitors may be compelled to act at this price,” he said.

Anglo American said it would review BHP’s offer. BHP has until May 22 to return with a binding bid.

BHP investor Equity Trustees Asset Management said the takeover proposal made sense strategically, “but much will depend on what BHP will eventually pay”.

“Having a bit more copper in the portfolio is a positive. If copper can move up from here this will likely offset any errors made in its purchase price of Anglo,” Equity Trustees head of equities Chris Haynes said.

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“As we know, large acquisitions like this always have problems and will likely weigh on the BHP stock price in the short term.”

BHP’s proposal is conditional on Anglo American first splitting off its platinum and iron ore businesses in South Africa, where BHP does not have any operations.

That requirement could add to the timeline for implementing BHP’s acquisition of Anglo American, and raise political risks in South Africa, where the country’s mining minister, Gwede Mantashe, has signalled that he is “not positive” on the proposal.

Shares in BHP fell on Friday to end the day trading about 4 per cent lower.

BHP still earns most of its money from digging up iron ore from sprawling mines in Western Australia’s Pilbara region and selling it to the global steelmaking sector. But chief executive Mike Henry has been leading a push to build more exposure to what he terms “future-facing” commodities – those standing to benefit from hastening global efforts to decarbonise. The build-out of clean energy infrastructure across the world will need massive amounts of copper, BHP says, while electric cars require up to four times more copper than internal combustion engine vehicles.

In 2021, BHP sold its stakes in several coal mines and offloaded its entire global oil and gas division to Woodside Energy, partly to free up its ability to increase spending on “future-facing” commodities.

Last year, it completed its biggest acquisition in more than a decade, taking over Australian copper producer Oz Minerals for $9.6 billion.

The proposed acquisition of Anglo American would give BHP an approximately 10 per cent share of world copper supply, surpassing Chile’s Codelco.

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The deal would also boost BHP’s position in Queensland, where both companies operate coking coal mines.

Crous said Anglo American had high-quality assets in key areas of strategic importance to BHP.

“The copper assets in particular are attractive to BHP given its view on the importance of this commodity’s role in energy transition, but Anglo American’s South American iron ore and Queensland’s metallurgical coal operations are also highly complementary to BHP’s existing operations,” he said.