Mining a cut-price London
MIKE Henry is in danger of being regarded as public enemy number one by backers of the London Stock Exchange (LSE). The BHP boss was instrumental in shifting the group’s main share listing from the City to Sydney in 2022.
He is now laying siege to one of London’s great heritage companies, Anglo American. BHP has been working on how best to structure a deal for more than a year with a view to gaining control of copper assets seen as the future in the green energy era.
The UK used to be regarded as the home for natural resource companies.
The prospective £29.5bn offer for Anglo would be a further blow to the efforts to rebuild the reputation of London as a place to list shares.
Eliminating a top constituent of the FTSE 100 would raise concerns that the London discount – the undervaluation of UK stocks relative to US counterparts – could expose other firms such as Reckitt Benckiser and Burberry to takeover risk.
One of the great strengths of UK stock markets has been the natural resources sector. The close relationship of the UK with Australia, South Africa and Canada, where extraction industries are critical, gave the London market cachet.
It attracted resources firms from Latin America and Russia among other places. Indeed, in 2011 the LSE came close to buying the mining-rich Toronto exchange but was blocked by Canadian authorities.
BHP will not necessarily triumph in pursuit of Anglo-American. But it will almost certainly tempt other buyers.
Those mentioned are India’s Vedanta, which made a previous failed offer, or perhaps a Chinese miner.
Glencore, which last year was frustrated in a bid for the whole of Teck Resources with its valuable copper interests, will be watching. Anglo-American’s board faces a difficult defence. The share price has been static over the last two decades while rivals such as BHP prospered.
The sparkle which came with ownership of De Beers, the world’s dominant diamond producer, has worn off. Anglo itself is no longer an enthusiastic owner amid competition from manufactured stones. BHP would almost certainly look to dispose of De Beers.
It is not just the London exchange which would suffer a setback should Anglo-American be absorbed and broken up.
ABHP deal probably would lead to a political backlash in South Africa. The Oppenheimer dynasty (no longer involved) left a lasting mark on South Africa as a liberal force during apartheid.
It is no accident that South Africa’s Public Investment Corporation, which manages government employee pensions, is among the largest equity holders, with 10pc of Anglo.
The complex BHP deal also is dependent on the separate distribution to existing shareholders of holdings in two publicly quoted South African entities Anglo American Platinum and Kumba Iron Ore. In the UK a deal would again place a question mark over the fate of the Woodsmith fertiliser project near Whitby in North Yorkshire which employs up to 1,300 people.
Henry’s ultimate objective is to be a dominant force in copper, adding ownership of mines in Chile and Peru to current operations. A deal would give BHP some 10pc of the world market at a time when demand has been growing exponentially.
Buying companies on the London market has been made easy because of the replacement of UK-run funds by an assortment of US investors interested in quick wins rather than the public interest.
This is not a transaction which is going to be rushed. It will be reviewed by competition authorities across the globe and that could take 18 months. The fear must be that if Anglo-American is lost then other miners will be shaken off the tree.
Glencore is under pressure from activist Tribeca to shift its listing to Sydney. Shell, the FTSE 100’s biggest company, has hinted at moving to New York amid concern that climate change enthusiasts are making Britain hostile to big oil.
Anglo-American will not vanish without a fight. Political ramifications for the City and in the group’s South African hinterland may prove more important than the bid on the table.