Copper pipes

BHP’s power play for Anglo may disrupt copper supply

While mining giant BHP (ASX:BHP) is witnessing investors selling up shares after Anglo American (LSE:AAL) rejected the $60 billion non-binding takeover offer, delves into how this deal could impact the broader market if it were to go ahead.

Peak Asset Management Executive Director Niv Dagan says in regard to the broader market, it will further “disrupt the supply for copper, driving the metal higher”.

“Copper stocks have actually done really well and the price of copper has actually increased because the market is saying, ‘well, what impact will that have on future supply of copper’,” he says. 

Dagan says the refined copper market is expected to be in a deficit of 200,000 to 300,000 tonnes in 2024. 

Since the beginning of 2024, the copper price on the London Metal Exchange has increased 18.6% to US$10,135 ($15,663) per tonne on 29 April 2024. 

Financial services company Moody’s Ratings says a potential tie-up between the pair  would increase BHP’s copper production, with additional benefits to come from Anglo American’s copper growth options and increased geographic diversification. 

Dagan says Anglo American saw an 11% increase in copper production during the March quarter this year, while also reporting a 24% rise in production during 2023. 

Copper represents 30% of Anglo’s total production, which largely comes from four major copper assets – the Quellaveco Project and the Los Bronces, El Soldado, and Collahuasi mines. 

Moody’s believes the potential combination would add “substantial scale” to BHP’s core commodities while also materially increasing its operational, geographic, and commodity diversity. 

However, analysts question whether BHP has the acumen, expertise, and resources to integrate Anglo American’s copper assets into its operations. 

“It comes down to this unknown, especially being in a different jurisdiction and there are inherent risks, political risks, sovereign risks, associated with that as well. Then the question becomes, referring to the fertiliser business, whether [BHP] will try to sell it off or shut it down,” Dagan says. 

BHP is already building its own fertiliser project (Jansen Potash Project) in Canada, with the company having  committed more than US$10 billion to fund an accelerated expansion plan. 

The company has invested about US$15 billion in the Jansen project, hence the uncertainty over the future of Anglo’s Woodsmith project in northeast England. Anglo is developing Woodsmith to access the world’s “largest known” deposit of polyhalite. 

Polyhalite is a natural mineral that contains significant amounts of sulphur, magnesium, potassium and calcium plus numerous micronutrients, which makes it an ideal fertiliser.

Overall, the question still remains on whether or not BHP will be able to get the deal over the line.

Since BHP released its proposal to takeover Anglo American last week, the company’s share price has fallen about 6% from a close of $45.23 on 24 April 2024 to $42.60 yesterday (1 May 2024).

Anglo American’s share price on the London Stock Exchange, meanwhile, has spiked more than 20% to £2,634 ($5,079).

Peak Asset’s Dagan says there is a chance that the offer was too high and that is why Anglo’s share price has increased. 

“So, that indicates to us that investors see BHP potentially overpaying for Anglo American’s assets,” he says. 

BHP, which has a market capitalisation of $218.22 billion, offered to acquire all of Anglo’s shares for $48.13 per share. 

The proposed deal represents a 31% premium on the implied market value of Anglo’s unlisted assets, and a 78% premium to the volume weighted average price of Anglo’s shares in the 90 trading days prior to and including 23 April 2024. 

Anglo American Chairman Stuart Chambers says the proposed offer was “highly attractive”, but fails to value the company’s prospects and dilutes the relative value upside participation of shareholders relative to BHP’s shareholders. 

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Written By Aaliyah Rogan
Relocated from the East Coast in New Zealand to Queensland Australia, Aaliyah is a fervent journalist who has a passion for storytelling. When Aaliyah isn’t writing stories, she is either spending time with friends and family or down at the beach.