Diversified mining major BHP announced a proposed all-share offer that values Anglo American at £31.1-billion in a deal that has the potential to transform the mining industry landscape.
BHP offered Anglo American shareholders £25.08 a share, including £4.86 a share for Anglo American Platinum (Amplats) shares and £3.40 a share for Kumba Iron Ore shares.
The proposition entails Anglo demerging its holdings in South Africa-focused Amplats – the world’s leading platinum group metals miner – and Kumba Iron Ore to its shareholders. These components of the proposal are mutually dependent.
The combined entity, BHP pointed out, would have a leading portfolio of large, low-cost, long-life tier-one assets focused on iron-ore and metallurgical coal, as well as future facing commodities, including potash and copper.
“From a strategic standpoint, bigger is always better in the metals and mining sector,” CreditSights analysts Wen Li and Michael O’Brien said in a note.
The analysts believe that BHP is also likely drawn by Anglo’s low valuation with its stock down 12% over the last year.
London- and Johannesburg-listed Anglo is going through a multi-year operational restructuring with the group having initiated an asset review to “optimise value by simplifying and improving the quality of its portfolio”.
BHP has been looking to grow its position in copper and the metal is a standout within the Anglo portfolio.
Cited by newswire Reuters, Tribeca Investment Partners portfolio manager Ben Cleary said that the potential tie-up was “all about copper“.
“I think it’s a good deal for BHP. Anglo is obviously very much in play now and there’s probably room for others to interlope. This is going to set the whole sector on fire,” the news agency quoted Cleary as saying.
Copper currently represents 30% of Anlgo’s total production, with the business strategically positioned to capitalise on major demand themes, supported by several organic growth options. In its recently released first-quarter production report, Anglo reported an 11% increase in copper production, driven by strong performances from its Quellaveco operation in Peru, and Collahuasi and El Soldado in Chile.
Anglo is targeting copper production of between 730 000 t and 790 000 t in 2024.
BHP, which last year bought Australian copper miner Oz Minerals for A$9.6-billion, is aiming for copper production of between 1.7-million and 1.9-million tons for the financial year to the end of June.
Should a deal go ahead, BHP would also gain new interests in diamonds, but analysts Li and O’Brien said De Beers might be considered for divestment in future. BHP exited diamonds in 2012,when it sold its Canadian Ekati diamond operation.
In a statement on Thursday, Anglo said it was evaluating the proposal with the assistance of its advisers. However, the company cautioned that there is no certainty that any offer would be made, nor any certainty about the terms on which such an offer might be made.
The combined entity would retain BHP’s global listings on the ASX, LSE, JSE and NYSE.