BHP wants to buy Anglo American, but what would the potential $60bn deal mean?

In what was meant to be a quiet week on the markets, investors learned yesterday that BHP wants to buy Anglo American. Although a formal offer has not been put, BHP has confirmed media reports that it has put forward a non-binding proposal. This proposal values Anglo American at nearly A$60bn, to be paid in BHP shares (0.7097 BHP share for each Anglo American share).

Why BHP wants to buy Anglo American

BHP gave several reasons including:

• Economies of scale with Anglo America’s assets and long-term growth potential, combined with BHP’s higher margin assets, growth projects, free cash flows and balance sheet
• The combined company would have far greater commodity diversity with financial capacity to support M&A deals for future projects
• Operational synergies that would come from both mergers.

But investors know it is really all about one commodity – copper. Copper is one of the most highly used metals because it conducts electricity well. The average Australian home has 90kg of copper, in wiring pipes and appliances. It occurs naturally in humans, animals and plans, can be mixed with other metals to form alloys, and is one of the most recycled metals in the world. It is a critical metal for EVs, used four times more in EVs than petrol based cars. While many other EV metals, like lithium and nickel, have plunged in recent years, it has not been the case with copper. LME copper prices have risen over 13% this year and are at the highest levels in 2 years.

LME copper price, log scale (Source: TradingView)

Copper demand is set to double

BHP has assets in South Australia and in Chile and produced 1.7Mt of copper in FY23. It is anticipating 1.9Mt production in FY24. But, with copper demand set to double over the next 30 years, it wants even more.

BHP’s copper assets (Source: Company Fact Sheet)

BHP bought Oz Minerals last year for $9.6bn. Anglo American has assets all over the world, on all continents except Antarctica, and taking it over would make it the world’s biggest copper producer, with more mines in Chile and Peru.

What’s more, BHP can buy Anglo American at a slightly discounted price, with its shares having dropped 12% in the 12 months prior to this deal being confirmed. Anglo American is heavily exposed to nickel and price declines led to a fall in profit and consequential cut in its dividend. It wrote down its nickel business as well as its De Beers diamond unit.

Will the deal proceed?

Not necessarily. As with all deals, it is subject to shareholder and regulatory approval. And they may not be so keen. Some of Anglo American’s biggest investors have criticised the deal, including the South African government – specifically the state-owned Public Investment Corporation.

Mining Minister Gwede Mantashe told the Financial Times he was against the plan, noting the country’s previous experience with BHP was not positive. Perhaps another secret reason is because it does not want to see the platinum it mines fall even more out of favour than they are already, with price declines. In fact, the deal is conditional on Anglo American giving up its platinum and iron ore operations. Another investor, Legal & General Investment Management, declared that it undervalues the future prospects of Anglo America. If the deal proceeded it would be a big blow for the UK market, losing such a big company.

So what next?

British M&A law provides for BHP to have until the close of business on May 22 to make a formal offer. What happens here will not just be watched by shareholders of both companies, but arguably the whole world. Even if this deal does not get up, it does to show that copper will be a very important metal going forward – important enough that the world’s biggest miner was prepared to make the largest mining deal on record to get its hands on more of it.

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