BHP bid a wake-up call for company and country

The battle is on for Anglo American now that the global mining group has rejected Australian miner BHP’s “highly unattractive” merger proposal. BHP will have to present a proper bid by May 22 if it wants to pursue the merger. The jump in Anglo’s share price since news of the proposal emerged late on Wednesday means the “Big Australian” will have to come up with a better offer than the one it suggested when it first approached Anglo in mid-April.

Whether it will now make a formal bid at all is a question. But if it doesn’t, it will look like a chancer. And, either way, Anglo is now in play. It is under pressure to show it can deliver more for its shareholders as a stand-alone than it can by throwing in its lot with BHP, or indeed with other global miners that might now be emboldened to bid; Rio and Glencore have both been mentioned.

As Anglo and the sector head into the next few turbulent weeks and months, the first crucial question South Africans will be asking is: what is in it for Anglo shareholders? They include the Public Investment Corporation, the largest shareholder with more than 8%, as well as all the big SA fund managers — so the answer affects savers and pension fund members across SA. But the second crucial question is: what is best for SA?

BHP’s approach has been a wake-up call for Anglo, which is going to have to deliver the “self-help” it promised the market when it announced a dramatic fall in its 2023 profits earlier this year. But the Australian approach has been just as much a wakeup call for SA, highlighting how unattractive a jurisdiction it has become for mining — and how much at risk it is of being marginalised even further, despite its rich mineral resources.

Everyone in the mining world is chasing critical minerals, and copper is top of that list. BHP derives about a third of its profits from copper but it wants much more — and Anglo’s assets in Peru and Chile offer rich pickings. A merged BHP-Anglo would have about 10% of global copper production, making it the single-largest producer.

Anglo’s commodity price and operational woes of the past year or two led to it being undervalued; BHP jumped in mid-April to take advantage, proposing an all-share merger that is conditional on Anglo unbundling its key SA assets — its 79% of Anglo Platinum and 70% of Kumba Iron Ore — to shareholders.

On April 23, the day before news of BHP’s proposal emerged, the Australian miner said it was worth £25.08 to Anglo shareholders. By Friday’s close, the Anglo share had jumped to £25.60. If it wants to submit a formal bid by May 22, BHP will clearly have to up its offer.

The question for Anglo shareholders is: would they be better off with a merged BHP-Anglo or with Anglo alone? A merger would switch their exposure into a much larger and much betterrated mining major, especially given that mining shares attract better ratings on the Australian market than they do in SA or even London. It would boost their exposure to “future facing” copper and fertiliser. In theory, too, Anglo shareholders could gain from owning the listed platinum and iron ore shares directly. But many of them may not want to do so. And there are question marks over whether those companies would be worse off without a global parent.

There are even bigger question marks over what losing Anglo would mean for SA. The JSE is already struggling to maintain its relevance as the number of listings slides. A merger would reduce two big mining sector listings to one (BHP has a secondary listing on the JSE), leaving the local mining sector focused mainly on single-commodity players rather than big, diversified miners. For SA, the blow would be huge. It would lose one of its largest and most important corporate citizens and the only global miner that has maintained its commitment to SA from its London headquarters. Anglo has been a huge investor in SA mining but also in SA’s community and social fabric and its infrastructure.

Losing Anglo would marginalise SA even further as a destination for mining investment. SA has only itself to blame for that. And while for Anglo shareholders a bid will eventually come down to price, for Anglo and SA it needs to be a call to action.

ANGLO IS NOW IN PLAY. IT IS UNDER PRESSURE TO SHOW IT CAN DELIVER MORE FOR ITS SHAREHOLDERS AS A STAND-ALONE