All eyes are on copper, a metal critical to the green energy transition, after Australian mining giant BHP proposed a £31.1 billion ($39.3 billion) offer to acquire Anglo American. 

The London-based mining company, however, was quick to reject the offer, saying it “significantly undervalues” the company. Calling the bid “opportunistic” and “highly unattractive,” Anglo’s chairman Stuart Chambers said the board unanimously rejected the offer, which included the demerger of Anglo’s platinum and the Kumba iron ore businesses.

The proposed structure would create “substantial uncertainty and execution risk borne almost entirely by Anglo American, our shareholders, and our other stakeholders,” Chambers reiterated to the company’s shareholders during an annual general meeting held last week.

Copper’s bull run

BHP’s bid comes at a time of soaring demand prospects for copper thanks to the green energy transition, led particularly by electric vehicles and renewables. Analysts have been calling the second bull run for the red metal, buoyed by tight supply forecasts and an inflection in global interest rate trends. Naturally, the biggest global miners all want a share of the pie.

It’s no surprise that the main target of BHP’s unsolicited offer is Anglo’s copper business. Anglo currently has four copper mines: Los Bronces, El Soldado, and Collahuasi in Chile, and the newer Quellaveco mine in Peru. During the first quarter of this year, Anglo reported an 11% increase in its copper output after producing 198,000 tonnes of the metal. Moreover, the miner had been seeking partners since last December, particularly for its Woodsmith fertiliser mine in England. 

The move “could rapidly accelerate BHP’s ambitions in metals required for the energy transition, like copper, without needing to shed a load of cash,” says analysts at Hargreaves Lansdown.

If a bid is successful, the combined entity would become the world’s largest copper producer with about 10% market share. Soon after BHP’s unsolicited offer, copper prices rallied to a two-year high of over $10,000/tonne. It was trading at $9,895.50/t at the LME (3-month price) at the time of writing, Kallanish notes. 

“Companies themselves have said that they want to increase their exposure to copper,” says James Whiteside, head of corporate, metals & mining at Wood Mackenzie. “But when you look at the pure-play mining companies in the copper space, their premium valuations have held back any bids. So what companies are doing now is really looking at their peers who have a big presence in the copper market and thinking about, ‘okay, similar sorts of valuation multiple, how can we make this deal work so we can get access to the copper market?’” 

Some believe that BHP is considering a revised proposal for Anglo in the coming weeks. A “fair value,” according to analysts at Jefferies, would be £28/share, which would value the company at $42.6 billion. At 28% higher than Anglo’s recent share price, the analysts believe it would be a “reasonable starting point in estimating what price might be enough to get a deal across the finish line.”

Other analysts have suggested the bid would need to cross £30/share. Moreover, Elliott Investment Management has since been increasing its stake in Anglo, going up to 2.6% last week, from the previous 2.5%. The move further raised Anglo’s share price to over £27, much higher than the £25.08/share offered by BHP, signalling any takeover would need to be pitched at a higher bid.

But, closing the deal will not be as simple as making a higher bid.

Hurdles along the way

Many industry experts have said a key challenge to BHP’s proposal would be potential opposition from the South African government, which is Anglo’s biggest shareholder through its Public Investment Corporation. BHP’s offer stipulates Anglo distribute its stakes in Anglo American Platinum (Amplats) and Kumba Iron Ore – both in South Africa – to Anglo shareholders.

This would be a big blow to the country. However, South African president Cyril Ramaphosa’s spokesperson refuted claims last week, noting the move is a “normal market activity.” 

“​​The presidency rejects the notion that a commercial approach by BHP equals to a hostile environment for investors,” spokesperson Vincent Magwenya told a media briefing. Stating it is “still early days,” Magwenya added: “we don’t as a country go out of our way to block market activity.”

The creation of a copper giant is also bound to pose antitrust hurdles. 

“Although consolidation of two major forces in the mining industry has scope to generate cost savings through the generation of synergies, it also consolidates control of key commodities, which may attract the scrutiny of regulators and spark concerns on competition grounds,” warns Simon Beardsmore, a senior mining analyst at SP Angel. 

Floor open for rival bidders

While a potential revised offer is anticipated from BHP, many also expect rival bidders to emerge on the scene. BHP’s competitors such as Rio Tinto, Glencore and Brazil’s Vale have all been speculated to make counterbids, particularly due to their copper interests.

“From a strategic perspective, Anglo could be a good fit for Glencore and Rio,” Jefferies analysts say in a note. 

Glencore, for one, has a strong strategic rationale to pursue Anglo. Back in 2009, Switzerland’s Xstrata – 35% owned by Glencore at the time – had proposed a merger with Anglo, in a deal most likely supported by Glencore. Now, Glencore’s “strategic fit” with Anglo is “even stronger” due to operating synergies and “even greater” marketing benefits, Jefferies believes.

Besides, Glencore and Anglo each own a 44% stake in the Collahuasi copper mine in Chile, and the Anglo acquisition would give Glencore significantly higher control over one of the largest copper reserves in the world. 

In addition, the Swiss giant is likely to face less “political pushback” in South Africa, especially if it made an offer without the Kumba and Amplats demergers, the analysts say. 

Similarly for Rio, Anglo’s copper business would make an “excellent addition” to its business, with Rio likely to face “fewer antitrust hurdles” compared to BHP or Glencore, they add.

Yet, some also speculate that Chinese or Indian players such as ​​Vedanta Resources could be interested.

“The die is cast for China to come in and trump BHP’s offer with relatively little resistance from the South African authorities,” says John Meyer, a mining analyst at S&P Angel. “We expect to see competing offers for Anglo from China, the US and possibly India. Barrick Gold or Teck may be tempted to take a run at Anglo.”  

However, Jefferies analysts disagree, stating they see no “strategic argument” for companies such as Freeport, Barrick, Newmont or Vale to get involved.

“We do not believe other miners, Chinese buyers or sovereign wealth funds are likely to get involved with Anglo in its current form,” they note. “That could change if Anglo goes into break-up mode as there would be more interested parties if De Beers, nickel, manganese and Amplats were sold/demerged.”

Under UK rules, BHP has until 5 pm on 22 May to make a formal bid for Anglo. Until then, it’s anybody’s game.