Main points,
BHP is making a move for Anglo American, which could draw out counter-bidders due to Anglo's prized copper business.
BHP is looking to reach annual copper production of 2 million tonnes.
Some potential counter-bidders include Rio Tinto, Glencore and Vale.
Anglo's copper business includes three mines and a smelter in Chile, as well as the newly commissioned Quellaveco copper mine in Peru.
Analysts believe that the deal might require a higher premium to go through, due to the quality of Anglo's copper portfolio.
BHP's indicated US$39 billion scrip offer could trigger other M&A activity in the mining sector.
Rio Tinto's board and business development teams would be interested in acquiring Anglo's copper business.
Vale might also be interested in acquiring Anglo American.
The market reaction to BHP's move was negative, with BHP's shares down 4.5% and Rio Tinto's shares more or less unchanged.
Some analysts believe that BHP would be the world's leading copper producer for decades to come if the deal is successful.
Anglo American's reputation has been tarnished over the past couple of years, which could make it more vulnerable to BHP's offer.



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BHP mining peers on red metal alert with Anglo in Big Australian's crosshairs

Potential bid is likely to be the catalyst for further M&A action

Michael Quinn

Expectations are BHP's move for Anglo American could well draw out counter-bidders given Anglo's prized copper business and the red metal's prime position in the green energy revolution.

The obvious names potentially standing in the way of BHP reaching annual copper production of circa 2 million tonnes include Rio Tinto, Glencore and Vale.

Anglo's copper business includes threemines and a smelter in Chile, as well as the newly commissioned Quellaveco copper mine in Peru.

As relayed by capital markets firm Barrenjoey, Anglo's Chile business includes two major copper operations: a 50.1% interest in Los Bronces mine, which Anglo manages and operates, and a 44% share in the independently managed Collahuasi mine.

Anglo also manages and operates the El Soldado mine and the Chagres smelter (50.1% interest in both).

Production guidance this year for Chile is 430,000–460,000t, subject to water availability, while unit cost guidance is circa US190c/lb (200c/lb 2023).

It has also been suggested — though not by Barrenjoey — that the high-grade Los Suphatos copper deposit adjacent to Los Broncos in the high Andes is a real jewel in the company's copper business.

Meanwhile, in Peru, Anglo has a 60% interest in the Quellaveco mine, which was recently brought into production and is expected to produce 300,000t of copper equivalent per annum on average over the first 10 years of production, with a 35-year reserve life.

Production guidance for Peru for 2024 is 300,000-330,000t at about US110c/lb.

Analysts have their say

"Given the quality of Anglo's copper portfolio, we see the potential for interlopers including Glencore (due to potential synergies with the group's copper portfolio) and Vale (given potential synergies at Minas Rio and history of CEO Mark Cutifani with AAL) and thus believe the deal might require a higher premium to go through," RBC Capital Markets said.

While JP Morgan agrees a gate crasher is possible, it was coy when it came to naming names.

"Interloper risk (is) high … we believe there is potential for another large, diversified miner to have interest in this transaction," JP Morgan said.

More broadly, Macquarie sees potential for BHP'sindicated US$39 billion scrip offer — the ‘Big Australian' has until May 22 to launch a formal bid — to trigger other M&A activity in the mining sector.

"BHP may be first to start a sector wide M&A drive to secure critical minerals required for the energy transition," Macquarie said.

Obvious interlopers

Rio Tinto's board and business development teams would undoubtedly be right across the potential M&A landscape.

Adding Anglo's copper business would be a huge boost to its current copper division that is currently in the process of reaching 1Mtpa over the next 4-5 years.

And using its scrip to bid a higher price would notionally hold some merit given that prior to trading today, Rio's share price over the past 12 months was up about 14.5% versus BHP's 2.5%.

Still, the share price gains for the two over the past five years are much the same, albeit the market today was operating in typical fashion by knocking down the price of the current (likely) bidder.

In any case, Vale might appear to some the obvious gate crasher, given both the RBC rationale and the inherent increased risk tolerance it has given its South American roots.

Market reaction

In terms of immediate market reaction, traders were doing the usual automatic ‘sell the bidder' play by marking BHP's shares down 4.5% to A$43.20, capitalising the company at $219 billion.

Shares in Rio were more or less unchanged at $129.38, capitalising it at $211 billion.

Meanwhile, the trio of bigger independent copper mining names on the ASX were enjoying some tailwinds, albeit their production profiles are fractions of the bigger names in the global sector.

Sandfire, which has been flying of late, was up 1.2%, while the securities of Capstone and Metals Acquisition trading on the ASX were up 4-5%.

What the mainstream press is saying about the BHP move

Various reports byThe Australianincluded one that said BHP's management had been put on the back foot by the leaking of the news of its approach to Anglo American, emerging on the Anzac Day holiday in Australia.

Some sources saw it as a move by Anglo American to flush out a more attractive deal from BHP.

Another said that if BHP was successful, it would be the world's leading copper producer for decades to come.

"Being the biggest copper producer would give BHP a more balanced earnings stream, reducing its reliance on iron ore, particularly as China's economy starts its long-term moderation,"The Australiansaid.

"At 70% of earnings, iron ore is doing all the heavy lifting for BHP."

There was also a report quoting a Jefferies analyst note saying the assets were worth US$41 billion including debt.

"If BHP follows through with its offer (one that suggests the overall value of Anglo American is STG31.1 billion (A$59 billion) at STG25.08 a share), it will be getting a suite of heavily coveted copper projects worth $US25.4 billion, a South American iron ore operation worth $US8.4 billion and will leave behind platinum and South Africa-based iron ore operations worth $US10.9 billion," The Australian/Jefferies reported.

NewswireBloombergsaid Anglo's "missteps" over the past couple of years had left its "reputation in tatters".

It quoted capital markets firm Liberum for its assessment:"Anglo was the most-liked stock a couple of years ago," said Ben Davis, an analyst at Liberum Capital.

"Repeated guidance disappointments and relative underperformance of its commodity basket has left it vulnerable to approaches."

Bloombergalso suggested oneof the keys for BHP to pull off a deal for Anglo may lie in South Africa. The country's state pension fund manager is Anglo's biggest shareholder, and the group's platinum and iron ore companies are two of South Africa's biggest listed stocks. (Anglo is the majority owner of both, but they have small free floats on the Johannesburg Stock Exchange.)

"In a statement on Thursday, the Public Investment Corp. reiterated that the mining sector is of critical importance to the country and that any opportunities that arise need to take this factor into account," Bloomberg said.