BHP's Takeover Bid for Anglo American

By Felix Njini, Clara Denina, Melanie Burton

(Reuters) – BHP, the world's largest miner, needs to offer at least a 40% premium above Anglo American's share price for a renewed takeover bid. This follows the enhancement of Anglo's value due to significant asset sales.

As mining companies pivot to metals vital for sustainable energy, copper has gained traction due to its wide range of applications, from power generation to construction. BHP is specifically eyeing Anglo's valuable copper resources in Chile and Peru.

BHP's previous attempt for a $49 billion takeover, equivalent to 31.11 pounds sterling ($39.38) a share, was rejected in May, but they haven't dismissed the possibility of making another offer.

Sources from the investment banking community indicate BHP must present at least a £15 to £20 premium on the current share price of around £23 to make the offer attractive. Additionally, Anglo has fortified its finances after generating almost $6 billion from selling coal assets and shares in its South African platinum unit under CEO Duncan Wanblad's restructuring strategy.

During the past year, Anglo's shares increased by over 20%, while BHP's have decreased by a similar margin. There are expectations that any renewed bid from BHP may encounter rival offers, particularly as Anglo refines its focus on copper production.

Anonymity-restricted sources suggest that BHP faces hurdles in crafting a competitive bid while adhering to CEO Mike Henry's emphasis on fiscal discipline. Fund manager Ian Woodley from Old Mutual remarked that although a deal window still exists, it is limited.

BHP Chairman Ken MacKenzie announced at the annual general meeting on Oct. 30 that the company has moved on from pursuing Anglo, although this statement was quickly contradicted by the company's official stance.

BHP reiterated they are focusing on maximizing their existing resources while making mention of potential plans for re-engaging with Anglo in the future, especially following the anticipated spin-off of Anglo American Platinum in mid-2025.

BHP has proposed an investment range between $10 billion and $14.7 billion over the next decade to enhance copper extraction from the Escondida and Spence mines, alongside restarting the Cerro Colorado mine.

Anglo American is expected to continue drawing interest due to its robust copper assets in Chile and Peru, with plans to escalate production to about 1 million metric tons by 2030, up from around 790,000 tons.

BHP investors remain cautious regarding expensive acquisitions, particularly with current share valuations posing challenges for a deal. They believe both miners must see shifts in their respective share prices to facilitate a successful bid.

Anglo American, previously undervalued relative to competitors, is undergoing a re-rating process as it emphasizes copper production. A spokesperson for Anglo indicated that this valuation change is ongoing.

Despite recent restructuring efforts, there is skepticism about Anglo's repositioning as a pure-play copper producer due to its enduring Brazilian iron ore operations. Some investors prefer to wait for the complete implementation of Anglo's strategy before considering engagement proposals to acquire it.

($1 = 0.7873 pounds)