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BHP will not be making a formal offer for Anglo American after the two parties were unable to come to a resolution regarding their M&A discussions.

After presenting three informal bids, BHP was given until May 29 to table a firm offer, and while the two miners had made headway in their discussions, Anglo remained dissatisfied with the deal structure.

“The BHP proposal includes the same highly complex and unattractive structure as the proposals previously rejected,” Anglo said.

“The requirement to pursue two contemporaneous demergers of publicly listed companies alongside a takeover and the inter-conditional nature of the three transactions is unprecedented. Undertaking a takeover in parallel with two demergers would result in additional material approvals.”

So how did we get here and what does the failed deal mean for the mining industry, specifically copper?

A refresher

The offer put forward on May 20 valued each Anglo share at 0.8860 BHP shares, up from the 0.8132 BHP shares proposed on May 13 and 0.7097 BHP shares proposed on April 25.

Anglo American rejected the bid, saying it doesn’t “meet expectations of value delivered to Anglo American’s shareholders”.

A primary concern that Anglo American had about all three offers put forward was the proposed demergers of Anglo American Platinum (Amplats) and Kumba Iron Ore.

The company said the demerger could take as long as 18 months to complete and carries “significant execution and completion risks relating to both value and time”.

“The requirement to pursue two contemporaneous demergers of publicly listed companies alongside a takeover and the inter-conditional nature of the three transactions is unprecedented,” Anglo American said of the proposed demergers on May 29.

“Undertaking a takeover in parallel with two demergers would result in additional material approvals. Such regulatory considerations for takeovers are not unique to South Africa and are increasingly prevalent in a number of jurisdictions.

“The approvals required in relation to the BHP proposal would be likely to result in material conditions being imposed that would disproportionately impact the value of Anglo American Platinum and Kumba and, therefore, the value delivered to Anglo American’s shareholders.”

Recent discussions

Between May 22–29, BHP said it put forward several socioeconomic measures to address Anglo American’s concerns about the proposed acquisition’s structure.

“BHP has considered market precedent transactions and believes that the risks are quantifiable and manageable,” BHP said. “BHP has already factored the costs associated with these risks into the offer ratio of its proposal.

“BHP believes that these proposed measures would provide greater economic benefits to South Africa than Anglo American’s accelerating value delivery plan, mitigate perceived value and completion uncertainty and ensure that any costs are not borne disproportionately by Anglo American shareholders.”

BHP said a further extension of the May 29 deadline would have been required to provide further opportunity for engagement on its proposal.

However, Anglo American said BHP’s proposed measures don’t “sufficiently address” its concerns around the execution and value risks of the takeover and the demergers of Amplats and Kumba Iron Ore.

“Throughout the engagements with BHP, BHP continues to restate its belief that the risks of its complex structure are not material, yet has repeatedly and consistently stated both publicly and during the engagements that it is unwilling to amend its proposed structure to assume these risks,” Anglo American said.

“The (Anglo American) board has therefore unanimously concluded that there is no basis for a further extension to the PUSU (put up or shut up) deadline.”

May 29 outcomes

In response to Anglo American, BHP said it won’t put forward a fourth takeover offer. BHP chief executive officer (CEO) Mike Henry expressed his disappointment.

“BHP is committed to its capital allocation framework and maintains a disciplined approach to mergers and acquisitions,” Henry said.

“While we believed that our proposal for Anglo American was a compelling opportunity to effectively grow the pie of value for both sets of shareholders, we were unable to reach agreement with Anglo American on our specific views in respect of South African regulatory risk and cost and, despite seeking to engage constructively and numerous requests, we were not able to access from Anglo American key information required to formulate measures to address the excess risk they perceive.”

Copper hunger

Anglo American chairman Stuart Chambers said the company will now focus on delivery the structural overhaul of its asset portfolio, which will see Anglo focus its attention on copper assets in South America and iron ore assets in South Africa and Brazil.

“Our shareholders will benefit from value transparency and undiluted exposure to a simpler portfolio of world-class assets, consistently stronger operational performance, and highly attractive growth in copper, premium iron ore and crop nutrients,” Chambers said.

“Anglo American’s management team, supported by the board, is fully focused on delivering the plans it has set out to accelerate value delivery, and doing so at pace.”

Anglo American recently saw an 11 per cent increase in copper production during the March 2024 quarter, with the Quellaveco in Peru achieving its highest plant throughput rate and the Collahuasi and El Soldado mines in Chile benefitting from higher copper grades.

“With copper now representing 30 per cent of our total production, and having the benefit of several well-sequenced and value-accretive copper growth options within our portfolio over the medium-term, we are also setting up the business to deliver and grow into the major demand themes,” Anglo American CEO Duncan Wanblad said on April 23.

Anglo’s substantial copper mines is what caught BHP’s eye. BHP owns and operates many prominent copper mines around the world, chief among them the Escondida mine in Chile, which aided BHP in achieving a 10 per cent increase in copper production across its assets for the March quarter.

In December 2023, the Federal Government introduced Australia’s strategic materials list, which identifies commodities that are essential for the energy transition but aren’t at risk of supply chain disruptions and aren’t vulnerable enough to meet the critical minerals list criteria. One of the five metals on this list is copper.

The base metal has a variety of end uses in a green economy, whether it be through electricity distribution, electrical equipment and devices, industrial machinery, wind turbines, solar panels and, of course, powering electric vehicles.

While BHP won’t be acquiring Anglo American, it seems copper will remain at the heart of both companies going forward as the world transitions to renewable energy.