Yahoo Finance How a global race to secure copper supplies sparked a £31bn bid for a FTSE giant
As he stood up and addressed other miners and governments in Paris last autumn, Mike Henry pointed to the scramble for precious battery metals across the globe.
Huge quantities of copper, nickel and lithium would all be needed to power renewable energy schemes, batteries and electric cars needed for net zero, the chief executive of Australian mining giant BHP told delegates at the International Energy Agency’s critical minerals summit.
“This is going to be hard,” he said. Then he added: “But with that comes great opportunity.”
Fast forward seven months, and at least one of the opportunities Henry had in mind is now seemingly clearer.
On Thursday morning it was confirmed BHP had made a blockbuster £31bn takeover bid for Anglo-American, its London-listed rival.
Observers noted that the news happened to leak out on Wednesday evening – just before the ANZAC public holiday in Australia – ensuring that investors would have at least a day to digest the news before markets reopened.
So what’s driving the deal? In a word: copper. And lots of it.
Since Henry took over as BHP’s chief executive in 2020, he has sought to bet big on copper as a key enabler of the green revolution, a crucial component for everything from power lines to batteries.
According to the International Energy Agency, copper demand is set to rise from just over 25,000 kilotons in 2022 to just under 35,000 kilotons by 2035 and 40,000 kilotons by 2050.
In 2023, global consumption was around 27,600 kilotons, the World Bureau of Metal Statistics said.
But analysts are now predicting there will be a market deficit this year, as a squeeze on supplies pushes prices up.
“The one commodity everyone wants more of right now is copper,” an insider at one of BHP’s rivals says. “Mike has made no secret of his desire to get hold of it.”
BHP, the world’s biggest mining company, is already the largest copper producer, with an output of just over 1,300 kilotons in 2023. That puts it only slightly ahead of rivals such as Chilean state-owned Codelco and US miner Freeport-McMoRan.
But Anglo-American too is among the top five largest players, having produced around 830 kilotons last year. Its top assets are the Los Bronces and Collahuasi mines in Chile and the Quellaveco mine in Peru.
If the company were absorbed into BHP, the enlarged businesses would represent 10pc of global output at the stroke of a pen – cementing BHP’s status as the undisputed leader in copper.
BHP is thought to have less interest in the non-copper half of Anglo’s assets, such as its diamond, platinum and iron ore mines in South Africa. That has prompted speculation that those could also be put in play.
“The proposed deal highlights miners’ desperation to boost [copper] production through acquisitions, in order to reap the benefits of the growing supply gap,” says Piotr Ortonowski, project manager at Benchmark Mineral Intelligence.
BHP’s timing looks far from coindential. Before the takeover bid became public, Anglo’s shares had been steadily declining for a year – with the company’s stock price plunging by 20pc after shock cuts to its production forecasts in December.
That has piled pressure on Duncan Wanblad, Anglo’s chief executive, to come up with ways to fix the crisis and boost shareholder returns. And in a remarkable coincidence, just hours after the BHP takeover became public, reports emerged on Thursday that the company was thinking about offloading diamond mining business De Beers.
Against this backdrop, Anglo’s investors have branded BHP’s approach opportunistic and called for the bidder to raise its offer.
At the start of this week, the London-listed miner’s shares were changing hands for just under £22 each, valuing it at just under £29bn.
BHP’s offer was for just £25 per share – well below the £30 one person at a top 20 Anglo shareholder says would need to be on the table.
On Thursday, there were also signs that Anglo’s biggest shareholder – South Africa’s state-owned Public Investment Corporation – was lining up against a deal.
Gwede Mantashe, the South African mineral resources minister, said he was against a tie-up because his country’s past experience with BHP was “not positive”, the Financial Times reported.
The deal may also become the victim of a regulatory probe, coming so close to South African elections late next month, notes the insider at the top 20 shareholder.
“South Africa won’t like it,” the person adds. “Anglo is behind a lot of South Africa jobs.
“There’s risk attached.”
But ultimately it may all come down to price – and responsibility for getting a good deal falls to Anglo chairman Stuart Chambers and the rest of the company’s board.
Within the City, Chambers, a veteran operator who was previously chairman Travis Perkin, is perhaps best known as the man who sold the UK’s then-largest technology company, Arm Holdings, to Japan’s Softbank in 2016.
But in Henry, he will be up against a chief executive who has repeatedly vowed not to overpay for acquisitions following a troubled history of takeovers at BHP.
Over the past four years he has consolidated BHP’s structure in Australia, delisting it from London, selling off fossil fuel assets including coal and oil and gas operations and buying into minerals that he has argued will be central to the net zero transition.
The chief executive expanded his company’s copper and nickel assets with a takeover of OZ Minerals in 2022 but played it cool publicly, insisting OZ was “not a must-have” after making an initial offer of A$8.3bn (£4.3bn). He subsequently sealed the deal by upping his bid to A$9.6bn.
The £31bn takeover would mark the largest UK takeover this year, dwarfing the £5.5bn takeover of paper maker DS Smith. It will provide a golden opportunity for bankers in the City.
BHP has hired UBS and Barclays – two European banks – to help in its pursuit while Anglo has turned to Wall Street titans Goldman Sachs and Morgan Stanley plus boutique investment bank Centerview Partners to defend itself.
Mark Sorrell, son of former WPP chief executive Sir Martin Sorrell, is advising Anglo on the deal on behalf of Goldman. It marks his third major bid defence this year after helping Direct Line against Belgian insurer Ageas and Royal Mail owner International Distribution Services in the fight with billionaire investor Daniel Kretinsky.
Among the other notable names, Morgan Stanley’s top dealmaker Simon Smith, who recently gave evidence in the bank’s High Court battle with Mike Ashley, is also working alongside Mr Sorrell for Anglo.
Owing to the hard-charging personalities involved, mining deals often have an added sense of drama when push comes to shove.
Glencore’s £54bn takeover of Xstrata, the industry’s last major takeover in 2012, led to a high stakes battle between Glencore’s Ivan Glasenberg and the Xstrata’s Qatari shareholders over price.
After the deal threatened to collapse, former prime minister Tony Blair was drafted in to broker a midnight peace deal between the two sides at a discrete meeting at London’s luxury hotel Claridges.
Glencore is likely to sit this one out, industry observers believe, having recently spent $7bn (£5.6bn) acquiring Teck Resources.
Yet the merger of BHP and Anglo could yet trigger a wave of industry dealmaking as competitors look to keep up or grab some of the businesses left over.
One question in particular is whether BHP will have any interest in retaining Anglo’s controversial Woodsmith mine, a major potash project in the north of England.
The group was planning to spend $1bn per year between 2024 and 2027 getting the mine ready for production.
Now, everything suddenly seems in flux, says an industry colleague. “Everyone is going to be watching this space very carefully,” they add.
