On April 25, the world’s largest mining company, BHP Group (referred to as “BHP”), confirmed that it has made an all-stock acquisition proposal to Anglo American Plc (referred to as “Anglo American”) with a valuation of $38.8 billion. BHP’s proposal comes with the condition that Anglo American first divests its platinum and iron ore businesses in South Africa. This news immediately attracted the attention of nearly all industry insiders and caused a stir in the global mining market, pushing LME three-month copper futures to briefly exceed $10,000 per ton.
1. BHP’s Interest in Anglo American’s Copper Assets
BHP’s acquisition proposal stipulates that Anglo American must divest its platinum and iron ore businesses in South Africa, indicating BHP’s primary interest in Anglo American’s copper assets.
BHP, the world’s largest diversified mining company, operates in 25 countries, with key products including iron ore, coal, copper, aluminum, nickel, petroleum, LNG, magnesium, and diamonds. As of the close on April 24, BHP’s total market capitalization was $150.1 billion. Its major assets include the Escondida copper mine in Chile (the world’s largest), the undeveloped Resolution copper mine in the USA, the Cannington silver mine and Olympic Dam copper mine in Australia (the world’s sixth-largest copper mine), the Antamina copper mine in Peru, the Saraji coal mine in Australia, and the Samarco iron mine in Brazil.
Though smaller in scale, Anglo American, with a market capitalization of $36.569 billion as of April 24, is a century-old international mining company headquartered in London, operating in Africa, Europe, South America, North America, and Oceania, producing gold, platinum, diamonds, copper, and industrial minerals. Its major assets include the Quellaveco mine in Peru (the world’s fourth-largest copper mine), the Los Bronces copper mine in Chile (13th in global copper production), the Mogalakwena platinum mine in South Africa, and the Jagersfontein and Venetia diamond mines in South Africa.
In recent years, Anglo American has faced significant operational setbacks, including sharp declines in prices for key products (diamonds and platinum), issues with South African railways and ports affecting iron ore exports, and a 20% reduction in South American copper production to cut costs. These challenges have forced the company to slash production targets, lowering its valuation. In 2023, Anglo American’s overall commodity prices fell by 12%, and unit costs increased by 5%. BHP sees this as an opportunity to acquire high-quality copper assets from Anglo American, aiding its transition to greener, low-carbon operations.
2. The Rationale Behind BHP’s Proposal
This year, copper prices have continuously risen due to various factors, and institutions remain optimistic about its market prospects.
(a) Supply Disruptions
In late February, First Quantum’s giant Cobre Panama copper mine was ordered to shut down by the Panamanian government, affecting 1.5% of global copper production.
In early April, Vale reported that a Brazilian court had once again suspended operations at its Sossego copper mine, which produced 66,800 tons of copper last year, making it Vale’s second-largest copper mine.
In mid-April, the US Treasury, in coordination with the UK, issued new bans prohibiting metal exchanges like the LME and CME from accepting newly produced copper, aluminum, and nickel from Russia. This move aims to block revenue from Russia’s exports of these metals. Russia’s copper production accounts for 4% of global copper supply.
In mid-April, Zambia’s national power company announced plans to require mining companies to cut up to 20% of their power demand due to ongoing drought-induced rolling blackouts, having already issued force majeure notices to some mines.
At the end of April, Codelco, the world’s largest copper producer, reported that its copper production in the first three months of the year was 295,000 tons, a 10% drop year-on-year.
Copper is a leading base metal, with its price considered a global economic indicator. Frequent and concentrated supply issues have raised concerns about copper market supply.
(b) Optimistic Demand Outlook
As the global economy transitions to green energy, shifting from traditional fossil fuels to cleaner non-fossil energy is a prevailing trend. Copper is seen as a core material for this energy transition, with its demand structure undergoing revolutionary changes, emphasizing energy efficiency improvements. Copper plays a crucial role in power generation, transmission, and use, and in electric vehicles replacing traditional fuel vehicles. While copper demand in traditional industries like construction and home appliances has declined, demand from emerging industries like wind and solar power has grown significantly. The rise of electric vehicles further boosts copper demand, as EVs consume several times more copper than traditional fuel vehicles. The International Copper Association (ICA) predicts that global copper demand will increase from 28.3 million tons in 2020 to 40.9 million tons by 2040, with a compound annual growth rate of 1.85%. Regionally, India and ASEAN are expected to see the fastest copper demand growth due to rapid development in manufacturing and construction, with annual growth rates of 7% and 6%, respectively. Goldman Sachs projects that copper prices could surpass $12,000 per ton by 2025. Citibank estimates an additional 4.2 million tons of copper demand by 2030, potentially pushing copper prices to $15,000 per ton by 2025. Experts predict that copper prices could soar by over 75% in the next two years due to mining supply disruptions and increased demand from the renewable energy sector. The market sentiment is overwhelmingly bullish on copper prices.
(c) LME Copper Prices Hit Two-Year High
Driven by tight supply and optimistic demand fundamentals, copper prices have risen by 16% year-to-date. On April 29, LME copper prices broke through $10,000 per ton for the first time since 2022, reaching $10,135 per ton, indicating a strong and optimistic market trend.
Given the copper market fundamentals, BHP’s acquisition proposal to Anglo American is a logical move, likely planned and prepared for a long time.
3. The Impact of the Largest Mining Acquisition
Just one day later, on April 26, Anglo American announced that BHP’s acquisition proposal significantly undervalued the company and its future prospects. Given the proposal’s inherent uncertainties, complexities, and significant execution risks, the board unanimously rejected it. On May 13, BHP raised its offer to $42.7 billion, but Anglo American again rejected it. Reports suggest that Rio Tinto, the world’s second-largest mining company, also has intentions to acquire Anglo American, complicating the situation further and increasing uncertainties. The acquisition could follow the familiar pattern of major global mergers and acquisitions, with the target company continuously raising its asking price while the acquirer adjusts its offer. The subsequent actions of BHP and other mining giants remain to be seen. Besides price considerations, regulatory approval and other uncertainties need to be resolved, making the outcome difficult to predict.
Regardless, BHP’s acquisition proposal underscores the industry’s emphasis on copper resources and further elevates market optimism about the global copper market’s future. The ongoing acquisition process is expected to have a profound impact on the global copper market, driving copper prices to continue their high trajectory.
[Source – 上海有色网] 必和必拓拟并购英美资源凸显铜资产炙手可热 https://news.smm.cn/news/102758986
