BHP’s Anglo American aspirations reveal full extent of its copper conviction - Resources Rising StarsBHP’s $56 billion takeover tilt at the venerable out-of-Africa and London-listed Anglo American (LN:AAL) is not a takeover proposal at all.
It is a break-up proposal, one that has copper at its heart, or more specifically AAL’s copper unit which is good for as much as 790,000 annual tonnes of the red metal at a respectable unit cost of $US1.57/lb.
That copper is at the heart of the BHP tilt was confirmed in what detail AAL provided on the approach from BHP boss Mike Henry – AAL’s interests in South African platinum and iron ore would be split off before any BHP takeover bid for the rest.
BHP would then likely rid itself of AAL’s nickel, diamonds (De Beers), a fledgling fertiliser operation in opposition to its own potash ambitions, the manganese operations, and possibly the Australian met coal interests, the latter on possible anti-trust issues.
The whole thing then – should it actually proceed – is a merchant banker’s dream.
But the point is made that copper is at the very heart of the tilt. It goes to Henry’s ambition to build a copper unit big enough to hold sway in group earnings when the current earnings mainstay of iron ore falls away, as it will in response to peak steel, green steel and the Chinese-led expansion of African production.
Henry’s copper ambition became clear last year with BHP’s $9.6 billion takeover of OZ Minerals. While it has important integration benefits with BHP’s regionally close Olympic Dam copper-uranium mine, the OZ acquisition was small beer in comparison to his AAL copper play.
BHP is already one the world’s biggest copper producers (1.72Mt to 1.91Mt guided for FY2024 on a 100% basis and a unit cost at the biggest operation, the 57.5% owned Escondida, of $US1.40/lb to $US1.70/lb).
Nabbing AAL’s copper mines in Chile and Peru would deliver another 730,000-790,000 annual tonnes of copper at a unit cost of $US1.57/lb, based on guidance from AAL in its March quarterly earlier this week.
The strategy for BHP to reduce its earnings dependency on iron ore is well understood. And when it comes to copper, it has been an open book on why it is a commodity it so keen on.
It was certainly very open about its belief that copper was set for a golden period when it made its takeover bid for OZ. In February it fine-tuned its copper expectations, saying it had brought forward its earlier forecast that a supply deficit would emerge in the final third of the 2020s.
It said the supply deficit could well come earlier, and could well be pronounced. It is a recipe for sharply higher copper prices, something that is already playing out with copper prices up 15% to $US4.43/lb from an average of $US3.85/lb in CY2023.
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