Australian multinational miner BHP Group‘S CV an offer of almost 40 billion dollars for the rival Anglo-American (OTC:NGLOY) may not be enough to acquire the company as other diversified miners will likely bid rivals in the global race for copper resources.
After completing a $6.4 billion acquisition of the Australian copper producer OZ Minerals Last year, BHP doubled the price of the red metal amid widespread expectations that demand will rise sharply in coming years as the global economy transitions away from fossil fuels.
Solar and wind farms and electric vehicles require more copper than traditional utilities and internal combustion engine cars.
“This is the latest move to consolidate industrial metals, driven by a rush for copper and other metals central to the global clean energy movement,” Sean Casterlinefounder of investment consultancy firm Delta capital managementBenzinga said.
BHP, already the world’s largest mining company, is currently the third largest copper producer after the Chilean state enterprise. Codelco and US-based heavyweights Freeport-McMoRan Inc. FCX. A combination with Anglo American would push BHP into pole position.
“In our view, copper assets are the primary driver of a proposed transaction,” RBC Capital Markets analysts said.
BHP said it had offered 25.08 pounds ($32.27) a share for London-based Anglo American, which said it was reviewing the proposal. The all-stock deal values Anglo American at £31.1 billion ($38.9 billion) and is contingent on the British company spinning off its holdings in Anglo-American Platinum Ltd. ANGULAR AND Home Iron Ore Ltd. ASSUMEboth listed in South Africa.
The proposal represents a premium of almost 14% for London-listed Anglo American shares and a 31% premium without the platinum and iron ore units.
Analysts say that’s probably not enough.
Read also: Will copper reach $10,000? “An essential metal facing an uncertain future”
Anglo American shares have been so beaten up recently that the board and shareholders likely see BHP’s offer as undervaluing the company, including copper assets in Chile and Peru, where BHP also has copper operations. Anglo American shares have suffered due to operational problems, disappointing production prospects and the collapse of the diamond and platinum group markets.
BHP’s offer is “a timid and somewhat convoluted offer” that “will not be sufficient to attract either Anglo’s board of directors or its major shareholders”, Free analyst Ben Davis She said. After BHP’s bid, he raised his target price on Anglo to £27.50 ($34.41), a rise of almost 25% from the stock’s closing price before the bid was officially made public.
Jefferies analysts went higher, saying a price of at least £28 ($35.04) per share would be necessary for serious discussions between the companies, and a takeout price above £30 ($37.54) for action would be the result of a bidding war.
“If BHP does indeed continue to pursue this deal, we would be surprised if no other bidders emerge,” the company said. “Let the games begin.”
THE Capital Markets RBC analysts peg the diversified miner Glencore GLNCY as the only logical bidder due to the potential benefits of combining the companies’ copper assets. The company is also listed Valley VALLEY as a possibility given the attractiveness of combining iron ore assets in Brazil.
Davis pointed to a diversified multinational mining company Rio Tinto RIO as his first choice for an intruder, although he noted that the company has a reputation for preferring to build mines rather than buy them.
One reason copper acquisitions are attractive is that building new copper mines from scratch is expensive and time-consuming.
This is especially true in the United States, where obtaining a permit is difficult, or in other jurisdictions such as Panama, where a court ruling recently forced the closure of a huge copper mine after local protests, he said Jason Crawshawportfolio manager at Polar Capitalwhich invests in copper mines Lundin Mining Corp. LUNMF AND Antofagasta ANFGF.
“There is a rush for assets,” he told Benzinga. “Everyone is always trying to get more exposure to copper.”
Gold miners are also interested in increasing copper assets.
Last year, a US-based gold mining major Newmont Corp. NO bought Australian mining company Newcrest Mining Ltd. for nearly $17 billion, adding nearly 50 billion pounds of copper reserves and resources in one fell swoop.
Meanwhile, the Canadian-based rival Barrick Gold Corp. GOLD is spending nearly $2 billion to expand a copper mine in Zambia, aiming to expand plant production in 2028.
Investors seeking diversified exposure to copper producers may want to consider Global X Copper Miners ETF COPX, Sprott Copper Miners ETF COPP, Sprott Junior Copper Miners ETF COPJ AND iShares Copper and Metals Mining ETF ICOP.
Now read: Rising copper prices, portfolio overhaul make underperforming Anglo-American stocks a potential bargain: report (CORRECTED)
Photo: Anglo-American copper mine in Chile courtesy of AngloAmerican Flickr