Molten copper at Anglo American's smelter in Chagres, Chile.ANGLO AMERICAN/Reuters
BHP Group’s botched bid for Anglo American brings the curtain down on the greatest takeover attempt in global mining in more than a decade. The megamerger game will not end here. BHP’s lunge for its smaller rival highlighted a hard truth: Copper is in short supply and any big mining company without it will pay the price as economies strive for low-carbon futures.
The desire to own Anglo’s copper assets, including its 44-per-cent stake in Chile’s Collahuasi mine, one of the world’s biggest copper reserves, propelled BHP’s pursuit of Anglo. Copper is the metal considered most critical to the energy revolution.
On paper, BHP BHP-N seemed poised to win Anglo. BHP is the world’s biggest mining house, with a market value of US$150-billion. Its monstrous size would make lesser rivals shy away from launching competing bids. It is led by a Canadian chief executive, Mike Henry, with a reputation for meticulous planning – no cowboy, he. And Anglo was vulnerable. Its London-listed shares had been trashed by a series of mishaps, including production shortfalls and gruesome cost overruns at its Woodsmith fertilizer mine in England.
But Mr. Henry is no takeover artist and he, no doubt encouraged by mergers and acquisitions advisers Barclays and UBS, concocted a tangled offer – ultimately pitched at £39-billion – that Anglo refused to accept. The offer was conditional on the company spinning off two big South African businesses, Anglo American Platinum (Amplats) and Kumba Iron Ore, both majority owned, that Mr. Henry did not want. Anglo’s CEO, Duncan Wanblad, considered the demergers highly risky in the political and regulatory sense; investors worried the shares of Amplats and Kumba would plummet after the demergers.
Mr. Henry convinced Mr. Wanblad to extend the takeover talks while the two companies tried to break the deadlock. The rumours said that BHP might drop the plan to spin off Amplats and Kumba and bid for all of Anglo, or offer to cover any losses the shareholders of those two companies might see after the demergers were completed. But Mr. Henry refused to budge and the takeover attempt collapsed on Wednesday.
End of story? No way. Mining M&A tends to go in cycles and the next cycle may be about to intensify.
Switzerland’s Glencore, the world’s biggest commodities traders and one of the biggest mine operators, figured out more than a year ago that new copper reserves were scant, that building mines was a miserable exercise in pain management and that copper prices were heading up as production of electric vehicles, batteries, wind vanes, solar panels and new electricity grids consumed every gram of available supply. So it went after Vancouver’s Teck Resources TECK-B-T, another company pinning its future on critical metals, notably copper.
That effort, too, failed, though Glencore won a consolation prize – it bought Teck’s steelmaking coal operations in British Columbia. But Glencore has not given up its pursuit of copper. Nor will BHP. The other possible predator is Rio Tinto, the second biggest miner. The company is a giant in iron ore and aluminum – it owns the Quebec aluminum business formerly known as Alcan – but needs to ramp up its copper presence. Rio Tinto RIO-N appears M&A-shy under CEO Jakob Stausholm, but that may change. Aluminum can also conduct electricity but is a poor substitute for copper.
Copper opportunities still exist, though the prices are approaching nosebleed levels as the price of the commodity soars. In mid-May, in New York trading, copper prices reached a record US$11,000 a tonne. A few analysts and hedge fund managers think the rally is just starting (hedgie Pierre Andurand, manager of the Commodities Discretionary Enhanced fund, recently said he expects prices to go to US$40,000 a tonne). Pure-play copper biggies such as Freeport-McMoRan of Arizona are trading at six times revenues. Diversified mining companies like Rio Tinto trade at about a third that level.
In spite of the lofty prices, the metal’s scarcity is bound to keep the hunt alive. Glencore, typically the most aggressive and opportunistic mining company, is always open to a deal – a merger, a takeover, even the sale of Glencore itself (Glencore once tried to recruit Tesla as an investor, since it is a major producer of cobalt, a key battery metal for electric vehicles).
Freeport might make a move. Freeport’s CEO, Richard Adkerson, last year said M&A in the copper industry was “inevitable.” Mark Bristow, CEO of Canada’s Barrick Gold ABX-T, in March said that a combination of Barrick and Freeport “had a lot of logic to it,” though Freeport thought otherwise.
Teck, shorn of its coal so it can concentrate on copper projects, including the QB2 mine in northern Chile, looks vulnerable, though a hostile deal would be impossible, since the family of former chairman Norman Keevil controls the supervoting A shares. Glencore has a two-year standstill agreement with Teck, though that agreement would lapse if another company goes after Teck. Anglo is restructuring to focus on critical metals. Once that process is complete, it may be open to a deal, or pursue one itself.
It’s just a matter of time before copper-driven M&A resurfaces. Mr. Henry’s failure to nail Anglo does not mean he has lost interest in copper; the opposite is true.