BHP's $39B Anglo Bid Risks $9B Mine Future

Key Takeaway

• BHP's $39 billion bid for Anglo American aims to dominate global copper supply, but faces rejection and regulatory hurdles.
• Elliott Investment Management's $1 billion stake in Anglo shows market interest despite South Africa's government opposition.
• The acquisition raises concerns over the future of Anglo’s $9 billion Woodsmith fertilizer mine, with BHP possibly deprioritizing it.

BHP's Ambitious Takeover Bid

BHP Group Ltd. has launched a significant move in the mining sector with its $39 billion bid to acquire Anglo American Plc, aiming to become the world's top copper producer. This strategic bid is driven by BHP's desire to control a larger share of the global copper supply, anticipating a forecasted shortage that could drive up prices. However, Anglo American has rejected the offer, labeling it as undervalued and opportunistic. The proposal involves Anglo spinning off its South African platinum and iron ore companies before the acquisition. Despite the rejection, investor interest remains, evidenced by Elliott Investment Management acquiring a roughly $1 billion stake in Anglo.

Regulatory and Market Hurdles

The bid faces several regulatory and market challenges, including opposition from South Africa's government and potential scrutiny from China due to the strategic importance of copper in the clean energy transition. South Africa's state-owned pension fund, Anglo's biggest shareholder, and the country's mines minister have signaled opposition to the deal. Additionally, the transaction could attract attention from other mining giants, potentially leading to a competitive bidding environment. The deal's focus on copper assets highlights the metal's crucial role in electrification and the global energy transition.

Fertilizer Project Uncertainties

A significant point of contention in the potential acquisition is the future of Anglo’s Woodsmith fertilizer mine in England. BHP, already committed to its own Jansen fertilizer project in Canada, may not prioritize the Woodsmith site, which involves polyhalite, a niche fertilizer product with unproven demand. The project has faced challenges, including a $1.7 billion writedown by Anglo and plans to invest almost $5 billion to bring the mine into production by 2027. Analysts view the project as more of a nuisance, with demand prospects still elusive.

Street Views

• Ben Davis, Liberum Capital Inc. (Neutral on BHP's interest in Anglo American):

  "The Woodsmith mine makes the deal very awkward indeed — it’s the reason why we didn’t think BHP would get involved with Anglo American. BHP clearly doesn’t think much of it."

• Maxime Kogge, Oddo BHF SCA (Neutral on Woodsmith project):

  "The project is probably more of a nuisance than anything else... The project is on good tracks, but demand prospects are still quite elusive as the market does not really exist today."