Investors in BHP Group applauded the company’s decision to abandon a proposed $49 billion takeover of Anglo American. During the previous six weeks, the larger rival had rejected three proposals from BHP Group.
After Anglo announced it would not give the mining company headquartered in Australia another chance to work out the specifics of a plan requiring Anglo to spin off its South African operations, BHP decided not to submit a binding proposal.
The events ended a tense stalemate between the world’s two major mining companies. During discussions, shareholders cautioned BHP against overpaying to gain control over Anglo.
“It was one of the best opportunities out there for them and it was always going to be hard to complete. I applaud them for showing discipline,” said Andy Forster, senior investment officer at Argo Investments, which holds BHP shares.
Forster states that BHP’s timing was excellent. However, the deal’s complexity, requiring demergers and a surge in copper prices, made it challenging to carry out.
In line with its peers, BHP’s Australian-listed shares saw a 1.75% decline on Thursday.
BHP CEO Mike Henry, who transformed the firm since assuming the role in January 2020, acquired copper miner Oz Minerals for $6.4 billion last year. Landing the Anglo deal would have been a career-defining success for him.
“I don’t think it reflects badly on Mike Henry and BHP. It was an opportunistic bid and one that made a lot of sense,” said Matthew Haupt, lead portfolio manager at Wilson Asset Management, a BHP investor.
UP NEXT FOR BHP
BHP gained control of Anglo’s valuable copper holdings in Australia. Additionally, the company sought access to a metal essential for the global transition to clean energy and electric vehicles: copper.
“As investors, it wasn’t obvious that the proposed deal was very accretive. Yes it would bring more copper to the portfolio, but depending on what they paid for it, it’s not necessarily accretive to the share price,” Pendal Group portfolio manager Brenton Saunders said.
Mining industry sources in Perth report that BHP’s action against Anglo reflects miners’ growing preference for purchasing assets over developing them to expand. This trend is fueled by escalating costs of mine development and regulatory clearance deadlines being overrun. S&P Global data shows that the average time to build a new mine is currently more than 16 years.
Private client adviser at Ord Minnett John Milroy stated, “Clearly they remain acquisitive and will be sifting through their other targets for building out the copper portfolio.”
RBC analyst Kaan Peker suggests that BHP may pursue Canada’s Lundin Mining or London-listed Antofagasta (ANTO.L). Both companies hold copper assets in northern Chile, the same region where BHP operates its Pampa Norte operations.
“Anto is the one that screams the most synergies…but they are very expensive. Most of these you’re going to pay a large premium, so you have to have a lot of synergies to justify it,” he added.
BHP declined to comment.
Saunders of Pendal stated that BHP will need to focus on its own growth prospects. These prospects include Pilbara iron ore and copper in South Australia and Chile. Ideally, the company should also increase dividends.
Under British corporate laws, BHP must now wait six months before approaching the business again if it wants to pursue Anglo. Should a new party make an offer for its takeover target, it may return sooner.
Anglo declared it was totally committed to executing the measures it had set out to maximize value for shareholders after BHP withdrew its approach. This included selling off its less lucrative assets in order to concentrate on increasing copper output.
Anglo’s stock ended Wednesday’s London trading session 3% down at 24.80 pounds.
“BHP will bide its time for six months and see how investors agitate on the Anglo side,” Peker stated.
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