BHP's $39B Bid for Anglo to Lead Copper Market

Key Takeaway

• BHP Group proposes a $39 billion bid for Anglo American to become the largest copper producer, aiming for a 10% market share.
• The mining industry faces challenges in meeting copper demand due to declining ore grades and rising costs, despite prices at $10,000 a ton.
• New copper mines require copper prices to hit $12,000 for viable investment, highlighting the sector's significant funding challenges.

BHP's Ambitious Bid for Anglo American

In a move that has captivated the mining industry, BHP Group has made a $39 billion proposal to acquire Anglo American Plc. This bid is not just a significant financial transaction but also a strategic play by BHP to bolster its position in the copper market. The acquisition aims to make BHP the largest copper producer worldwide, controlling about 10% of the market. This strategy comes at a time when copper prices have surged to $10,000 a ton, driven by the metal's critical role in electric vehicles (EVs), grid infrastructure, and data centers. Despite the current adequate supply, the industry faces a looming supply gap, with existing mine production expected to decline sharply. To meet the anticipated demand, over $150 billion in investments will be required from 2025 to 2032, according to CRU Group.

The Challenge of Increasing Copper Production

The mining industry is at a crossroads, with a pressing need to ramp up copper production to meet growing demand. However, several factors contribute to a significant shortfall in investment. High-quality copper deposits are becoming harder to find, and funding for small explorers is dwindling. Additionally, social and environmental opposition to mining projects is on the rise, and the costs associated with labor, equipment, and materials have surged. Laura Whitton, BHP’s head of copper and potash strategy, emphasized the challenges facing the industry, including the reliance on older mines with lower ore grades. Despite these hurdles, the bullish market sentiment is fueled by the anticipation of future shortages, with investors betting that mining companies and their shareholders might prefer acquisitions over the development of new projects.

Financing New Mines: A Daunting Task

The financial dynamics of developing new copper mines present a formidable challenge. According to Olivia Markham, co-manager of the BlackRock World Mining Fund, copper prices would need to reach $12,000 to justify the investments required for new mining projects. However, there is a noticeable reluctance among investors to commit funds to these ventures. Historical trends indicate that when copper prices previously hit $10,000, miners opted to increase dividends rather than invest in expanding production. China, which has been a significant contributor to the global increase in copper supply over the past decade, faces its own challenges in sustaining this growth. This situation underscores the broader need for substantial investment in mine capacity to bridge the supply gap.

Street Views

• Will Kennedy (Neutral on the energy sector):

  "Something’s got to come out in the wash here, which is either some walking back of the policy or some recognition that it might work for Europe, but not for other parts of the world."

Management Quotes

• Patrick Pouyanne, CEO of Total:

  "There’s a case to move the company’s listing as he navigates the energy transition."