The mining industry has been abuzz this morning with news of a potential mega-deal between mining giant BHP and London-listed miner Anglo American. Anglo American has been seen as a potential takeover target ever since its share price took a sharp dive last year on the back of weak production forecasts. However, just hours after the news was confirmed by Anglo this morning, its share price has jumped by more than 12 per cent, effectively erasing the losses of the last 12 months.
Principally, the play would make BHP’s already top three global copper-producing share the world’s largest and also massively boost its exposure to large, low-cost and long-life assets iron ore and metallurgical coal. But its copper that runs through the veins of the proposal. The orange metal is currently significantly under-supplied and is forecast to become even more so thanks to closure of mines globally, delays from the coronavirus pandemic and mooted production cuts from China. BHP already owns and operates the world’s largest copper mine in Chile’s Atacama region, but would gain Anglo American’s own copper operations in Peru and Chile, despite the shaky production forecasts the company put forward at the tail-end of last year.
The deal is contingent on Anglo American divesting two of its South Africa-based problem children; the platinum division, known as Amplats, and Kumba Irone Ore. The former suffered a 71 per cent profit plunge last year and responded by announcing plans to cut thousands of job cuts across its mines in February. Kumba, meanwhile, announced a scheduled three-year cut in production in December to align output to constrained capacity to transport minerals via rail to port. The unit has been hamstrung by South Africa’s state-run railway operator Transnet, with cable theft and vandalism causing paused or delayed cargo transits and resulting in billions of rand in revenue lost.
One peculiar nugget in the deal is that BHP apparently wants to keep Anglo American’s De Beers diamond division, a unit that has arguably been one of the most embattled parts of the business at the hands of slumped demand from China and a growing cubic zirconia market. In a wider sense, the move has heightened existing fears about an exodus from the London Stock Exchange. Susannah Streeter, head of money and markets for Hargreaves Lansdown, said: ‘’The buyout offer won’t just shake up the mining industry, but will send a fresh chill through the City of London.”
The deal is up in the air until Anglo American responds but Andrew Keen of investment and research consultancy firm Edison Group, said that the company’s share price jump adds credence to the possibility of the deal going through. “Premiums for successful mergers and acquisitions in large cap mining are often in the order of 30 per cent and Anglo’s announcement indicates that the approach has been made on an all-share basis, but cash components can be used as sweeteners and initial offers are often improved,” he said.
Perhaps the bid could also force other world-leading miners such as Rio Tinto or Glencore to enter the ring with bids of their own. The latter could especially be one to watch, having recently shown an appetite for megadeals with its £5.5bn buy of Canadian Teck Resources coking coal portfolio, a talked down offer from the initial proposal Glencore submitted to buy Teck in its entirety. Until more updates are announced, London’s mining sector, and the wider stock exchange, will watch with bated breath.
