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Will BHP bid again for Anglo American?

The £39bn copper-driven takeover tilt sank last year, but could the mining deal be back on now that Anglo has done what its suitor asked by selling off assets?
ILLUSTRATION: PETE BAKER

In City circles, one hypothetical deal has bankers, lawyers and advisers salivating. Will FTSE 100 miner Anglo American succumb to a takeover by BHP, its former suitor, this year?

“On bankers’ lists of M&A, it seems to come top of the pile,” said a top investor in both Anglo and BHP. “It’s almost oven ready.”

Anglo, founded in 1917, fought off a £39 billion takeover bid by BHP last year. For the would-be buyer, the tilt was all about copper — the metal, prized for its conductivity, will be in high demand for electricity grids and electric cars as the world decarbonises.

The drawback for BHP, based in Australia, was that Anglo does not just own copper mines: it is something of a chocolate selection box that also comes with iron ore assets, a platinum business in South Africa, steel-making coal, and the diamond house De Beers. With the possible exception of iron ore, BHP did not want any of these.

Its solution was to tell Anglo and its shareholders that it would buy their company in an all-share deal if it spun off or sold many of these mines. The offer was given short shrift by Anglo investors, who sent BHP packing at its third attempt in May.

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So why is the City whispering that the deal might soon be back on? Partly because, in the intervening months, Anglo’s management has set to work on a plan that involves … doing pretty much exactly what BHP demanded. The company has raised $4.9 billion (£4 billion) from selling off coal mines, it is spinning off its platinum arm, and it is working out how to sell or list De Beers, which is battling with a prolonged slump in the natural diamond market.

De Beers focuses on lab-grown diamonds to polish its IPO appeal

“Anglo’s management have got the bit between the teeth,” said another big Anglo and BHP investor. “Ironically, this may make them more of a target. But the price they could demand for Anglo would be higher.”

Indeed, since Anglo embarked on its course of self-help, its shares have held on to the gains they made after BHP’s bid became public. The suitor’s shares, meanwhile, have fallen 16 per cent amid a malaise in iron ore, its key product. Investors are sniffing out potential value in Anglo — namely, its copper mines — that had been masked by other, struggling assets. The activist investor Elliott Investment Management appears to be enjoying the ride, having built up a £1 billion stake before BHP’s interest was known.

Should Anglo succeed in slimming down, the resulting company would be about two-thirds focused on copper. The remainder would include Woodsmith, a vast fertiliser mine in Yorkshire that has, in effect, been mothballed by Anglo until it can find a partner for the project.

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The fundamental reason for doing a deal has not changed much since BHP first put its head above the parapet. Analysts note that it is facing a gap in copper supply as its existing mines become tapped out and newer ones are brought on stream. Anglo could fill that gap nicely.

Dawid Heyl, co-portfolio manager of Ninety One, a top-15 investor in Anglo, said a recent investor trip to one of BHP’s copper mines in Chile had underlined the point that expanding its existing assets is expensive. He said: “They were very clear that it’s going to cost them a lot of money to add capacity in copper. And so a lot of people are speculating, are they not just telling us that it’s cheaper to buy Anglo?”

BHP’s original bid ruffled feathers in South Africa, where Anglo was historically based and where it is a big employer. The timing, just before a general election, was also considered unhelpful. In October, BHP chief executive Mike Henry paid a visit to investors in South Africa, which was seen by many as an attempt to mend fences. Company insiders acknowledged that it had somewhat neglected its presence in South Africa; after all, the modern-day BHP was born out of a merger between BHP of Australia and Billiton of South Africa in 2001.

Expectations are also high that BHP’s chair, Ken MacKenzie, will step down this year. Henry, in post since 2020, may also be eyeing his legacy.

Anglo American must dig deep to avoid being swallowed by suitor

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That said, BHP has sent mixed signals in recent months. At its annual meeting in October, MacKenzie said the miner had “moved on” from Anglo. It was then forced to issue a stock market notice to clarify that it was not ruling out a return bid in the next six months.

Three BHP executives posing for a photo.
BHP chair Ken MacKenzie, left, and chief executive Mike Henry, centre, may be thinking about their legacies. Right: Andrew Mackenzie, Henry’s predecessor
JAMES ROSS/ALAMY

Henry told a conference in France last month: “There’s no M&A transaction that is a must-do for BHP.” Rather, he said, the company would focus on improving its existing assets and looking for mines at earlier stages of development, including a prospective new project in Argentina.

Not everyone is convinced that BHP will return for Anglo. The question marks over the chair and chief executive’s tenures might cloud the chances of doing another deal – and BHP wouldn’t want to risk being turned down again, City sources said. Many wonder whether a rival player such as Glencore might be minded to swoop. “Logic tells you that you probably want to move sooner rather than later if Anglo shares are starting to recover,” said an Anglo investor.

Heyl, of Ninety One, reckons BHP should get a deal done: “I do think BHP is a better custodian [of Anglo’s assets]. And it solves the growth issue for them. I also think that in a world where copper is becoming the new kind of oil, where it’s driving energy markets and electrification, consolidation is good.”

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