BHP is on a charm offensive in SA to woo local investors
After Anglo American rejected an initial proposal by the mining company, calling it ‘opportunistic’, it appears that BHP is still on the hunt for Anglo and that a new proposal may be forthcoming
Mining giant BHP said on 2 May that its unsolicited bid for Anglo American, minus most of its assets in South Africa, did not “reflect a view” of the country as an investment destination.
BHP has also deployed a team of top executives to South Africa as part of a charm offensive to woo domestic investors and regulators.
Thwarted by Anglo’s brisk rejection of its initial $39-billion all-share merger proposal, BHP, the world’s largest mining company, has sent a team to South Africa to win local hearts and minds.
The proposal, which Anglo rejected as “opportunistic”, would see the target first spinning off Anglo American Platinum and Kumba Iron Ore, giving rise to speculation that BHP wants Anglo’s coveted copper assets without the baggage of South African risk.
In a press release on 2 May pointedly headed “Clarification Statement: South Africa”, BHP said this was not the case.
“The proposed structure does not reflect a view of South Africa as an investment destination and is based on portfolio and commodity considerations,” the statement said.
“The BHP Group has been listed in Johannesburg for multiple decades and intends to maintain its listing on the JSE.
“South Africa will continue under BHP’S proposal to benefit from Anglo Platinum and Kumba operating as independently listed South African companies investing in local operations, communities and jobs… BHP believes this structure unlocks immediate value, delivering shareholders and stakeholders access to future growth opportunities and investment currently not available under the existing ownership structure.”
The statement comes as BHP has dispatched senior executives including CEO Mike Henry to win over local investors and regulators, according to Bloomberg.
Daily Maverick has verified this and been reliably informed that senior BHP executives have been in South Africa in recent days. One source told Daily Maverick that on 2 May Henry was in Cape Town, where many of South Africa’s asset and fund managers are based.
Persuading such investors would be one of the keys to unlocking the deal.
New proposal
The fact that BHP is in South Africa and is issuing statements saying its original proposal is not a snub to the country strongly suggests that it remains firmly on the hunt for Anglo and that a new proposal may be in the offing.
Regulatory hurdles that it could face here include the possible need for the Competition Commission to approve the unbundling of Amplats and Kumba, which would see Anglo’s shares distributed to its existing shareholders.
BHP will have a tough sell with some in government, notably Mineral Resources and Energy Minister Gwede Mantashe, who told the Financial Times last week that South Africa’s experience with BHP had been “not positive”, as it had triggered capital flight from the country, in his view.
Mantashe has also no doubt been irked by what he sees as a smear on South Africa in the precondition to hive off Amplats and Kumba.
In fairness to BHP, it probably does not make strategic sense to expand an already diverse portfolio into platinum group metals, and it hardly needs Kumba’s iron production. Having said that, the South African risk factor cannot be completely discounted in its calculations.
But South Africa is really a sideshow. BHP’S interest in Anglo is driven by the latter’s global copper portfolio, notably in Latin America.
Major mining houses are scrambling for new copper resources, as the red metal is seen as critical to the green energy transition, and other trends such as urbanisation are seen fuelling demand for its more traditional uses in basic infrastructure development.
But finding new copper resources and bringing them to production is an arduous and costly task in the face of tightening environmental regulations worldwide and a skills shortage in the mining sector.
The bottom line is that it is cheaper for a big company with a robust balance sheet to buy existing copper assets than it is to attempt to find and develop them from scratch.
The Anglo/bhp saga is far from over, and other mega-merger proposals involving copper are probably on the horizon.
The proposed structure does not reflect a view of South Africa as an investment destination and is based on portfolio and
commodity considerations