Why BHP Is So Intent on Acquiring Anglo American: Here's Everything You Need to Know

On Wednesday, BHP announced its third and final $49 billion takeover offer to acquire Anglo, which was rejected again. Despite this, Anglo American has agreed to extend the deadline for a formal offer by one week until May 29, providing BHP with additional time for further negotiations.

Since the initial offer, BHP's stock performance has remained essentially flat, with a slight decrease of 0.71%, while Anglo American's shares have surged by 25%.

Anglo American was founded in 1917 by entrepreneur Ernest Oppenheimer, with its initial business built on South Africa's giant gold mines. In 1926, the company ventured into the diamond industry, gaining control of De Beers and becoming the largest diamond producer in the world. With the opening of international markets, it rapidly expanded overseas, acquiring and building coal mines in Australia, iron ore mines in Brazil, and copper mines in Chile and Peru.

Currently, Anglo American ranks as the world's seventh-largest copper producer, the fifth-largest nickel producer, and stands out as the only major miner with significant platinum and diamond operations. According to the latest rankings by Mining.com, a leading global provider of mining information services, Anglo American holds the 14th position among the world's mining companies.

Copper is the focal point of BHP's takeover attempt of Anglo American. In the same way that oil shaped the geopolitics of the last century, access to copper is becoming an economic imperative in the current era. The shortage in copper supply, driven by the global economy recovery, energy transition and the construction of AI data centers, has led to acontinous price increase. Copper prices have risen by approximately 23% since the beginning of the year.

Compared to developing new mines independently, pursuing mergers and acquisitions of existing assets is a more suitable option. This is primarily because new deposits are becoming harder and costlier to extract as ore grades decline, resulting in the need to mine more rock to obtain the same amount of metal. Additionally, the increasing scrutiny of the environmental costs of copper mining is also deterring further investment.

Anglo American's recent struggles have made it an attractive target for the mining industry's biggest predator. The company's reputation has been severely damaged by a series of setbacks, leading to a 50% drop in its value over the past two years before the bid. While many of these issues were beyond Anglo's control, such as the diamond market collapse and the sharp decline in platinum prices, the company has also faced challenges with rail and port infrastructure in South Africa, which has impacted its iron ore exports, a key source of revenue. Ben Davis, an analyst at Liberum Capital, said,

BHP has proposed that Anglo American divests its majority stakes in two South Africa-listed miners, as a condition for acquisition. The proposal requires Anglo to demerge Kumba Iron Ore and Anglo Platinum, which would enable Anglo to focus on copper mining in Chile and Peru, with an annual output of approximately 760,000 tonnes. This acquisition would enhance BHP's copper portfolio by around 40%, while also complementing its existing copper mining operations.

BHP is set to become the world's largest copper miner, overtaking Chile's Codelco, with the recent acquisition of OZ Minerals for approximately $10 billion, coupled with strong production from its projects in Chile (Escondida and Spence) and South Australia (Olympic Dam). If the proposed acquisition of Anglo American is successful, BHP would undoubtedly occupy the top spot in the global copper mining industry, with a 10% share of the world's copper production.

Some analysts said a potential deal between BHP and Anglo American appears to be more probable now. "Anglo is now showing signs of capitulation with the extension," noted Prasad Patkar, the head of qualitative investments at Platypus Asset Management in Sydney, which holds BHP stock. "At a price, Anglo is a seller, and at any price, BHP is a buyer. So I think that deal will get done."

Ben Cleary, portfolio manager at Tribeca Investment Partners said,“I would argue with the one-week extension, there is greater likelihood of a deal getting across the line, as Anglo's board are finally talking.”