By David Winning and Ben Otto
Mining giant BHP offered to buy longtime rival Anglo American for almost $39 billion in a potential megadeal that could reshape the global mining industry.
The world's largest mining company said Thursday that it had offered 0.7097 BHP shares for each Anglo American share in a deal aimed at bolstering its exposure to copper. The proposal is contingent upon Anglo American spinning off shareholdings in two South African-listed units, Anglo American Platinum and Kumba Iron Ore.
BHP said its offer valued Anglo American at 25.08 pounds a share, giving it a total value of GBP31.1 billion, equivalent to $38.77 billion. It said the offer represented a premium on the implied market value of Anglo American's unlisted assets -- the entirety of its assets excluding its stakes in Anglo Platinum and Kumba -- of about 31%, based on Tuesday's closing prices.
Anglo American said it is reviewing the proposal, which it described as unsolicited, nonbinding and highly conditional.
Shares in Anglo American soared more than 11% in early trading in London while BHP slipped about 3%.
A tie-up between Australia-based BHP and London-listed Anglo American would create an industry behemoth in what would be the biggest mining deal in years. It illustrates the growing importance of copper, a metal essential to clean-energy products, to a sector that has long relied on Chinese industrialization to boost profits.
Copper represents some 30% of Anglo-American's output, while BHP counts a majority stake in Chile's Escondida, the world's biggest copper mine, among its assets. BHP bought Australian copper-and-gold miner Oz Minerals for $6.34 billion in May last year, representing its biggest acquisition since 2011.
Copper prices are up some 15% so far this year, reflecting expectations that demand for the metal will rise as the world decarbonizes and supply will be constrained. Electric vehicles and wind farms use copper in much greater quantities than gasoline-powered cars and coal-fired power stations.
Acquiring Anglo American would also expand BHP's iron-ore business, which generates most of its profits. Anglo American operates the Minas-Rio iron-ore mine in Brazil, and in February said it had agreed to buy a large adjacent deposit that could lead to output from the operation expanding significantly.
Some analysts said BHP was acting opportunistically. Anglo American shares have fallen 47% since April 2022 as weak prices of commodities including diamonds, nickel and platinum, and some large impairments of assets drove a steep fall in the company's profit for 2023.
In December, Anglo American said it would try to cut $1 billion in costs this year, doubling an earlier target. At the time, some analysts asked executives whether they should consider selling assets as part of a turnaround plan.
BHP is likely drawn by Anglo American's low valuation following that share-price fall, CreditSights analysts Wen Li and Michael O'Brien wrote in a research note. "From a strategic standpoint, bigger is always better in the metals and mining sector," they said.
BHP's bid for Anglo American is a bet that investors in global mining companies will warm to a new era of megadeals, after several ill-timed big acquisitions more than a decade ago led to hefty write-downs and cost some executives their jobs. China's industrialization had raised expectations of a prolonged boom in commodity prices, which subsequently fell sharply as miners raced to add more supply.
BHP was at the heart of that period of dealmaking, failing with offers for Rio Tinto and Potash Corporation of Saskatchewan, before completing the acquisition of Petrohawk Energy in 2011. It later took impairments totaling several billions of dollars on the Petrohawk assets after natural-gas prices fell and some fields proved to be more complex and costly to develop than anticipated.
The hangover from that deal spree was long. For years, mining executives were circumspect in their approach to mergers and acquisitions, favoring larger returns to investors instead, including through big dividends. However, this has begun to shift as the energy transition and government policies such as the Inflation Reduction Act in the U.S. gives fresh impetus to dealmaking.
BHP has been steadily raising bets on the transition to a lower-carbon world, even as it continues to rely on iron ore for most of its profit. It sold its oil-and-gas unit to Woodside Energy in mid-2022, and this month completed the sale of two metallurgical coal mines in eastern Australia to locally listed miner Whitehaven Coal.
BHP's desire to get bigger in copper has its roots not only in expectations that demand will rise as a result of the energy transition, but also that the industry will find it hard to match that growth with additional supply. Executives have pointed to the declining quality of deposits, water scarcity and a lack of exploration success for clouding the global outlook for copper production.
Still, miners have faced some setbacks in trying to ride the energy transition. Nickel, once a popular bet of global miners, has become a drag on mining profits as demand for batteries failed to meet expectations and the market became swamped by a huge increase in supply from Indonesia.
BHP wrote down the value of its nickel business in Western Australia by $2.5 billion in February, just days before Anglo American impaired its nickel assets by $800 million.
Write to David Winning at david.winning@wsj.com and Ben Otto at ben.otto@wsj.com.
(END) Dow Jones Newswires
April 25, 2024 05:15 ET (09:15 GMT)
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