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Mike Henry, CEO of Australian mining company BHP, in Saskatchewan, on Oct 17, 2023.Fred Lum/The Globe and Mail

Global mining companies’ lunge for copper, a critical transition metal to a low-carbon future, has intensified with BHP Group Ltd.’s BHPLF unsolicited proposal to buy rival Anglo American PLC NGLOY for about US$39-billion ($53-billion). Competing offers are expected.

The offer marks a return to the megadeals that transformed the mining industry in the first and second decades of this century. If successful, it would be the biggest takeover since Glencore PLC’s US$90-billion merger with Xstrata, which owned Canada’s Falconbridge nickel miner, in 2013.

Based in Melbourne, BHP is the world’s biggest mining company and is led by Mike Henry, who is Canadian and has been chief executive officer since the start of 2020. If BHP’s offer is accepted, the company would emerge as the world’s top producer of copper, up from third-largest, according to RBC Capital Markets.

The enlarged BHP would control about 10 per cent of the global supply of copper, a metal that is essential for electric vehicles, wind turbines, electrical grids and residential and commercial-property wiring. Demand for the metal is surging as EVs gain market share and grids are overhauled, driving up its price and creating shortages as fewer big mines are developed. Copper is up 15 per cent this year alone.

Anglo said it is reviewing the proposal and made no comment about its value. Under U.K. takeover rules, BHP has until May 22 to convert its proposal into a firm offer.

BHP said on Thursday that it had offered 0.7097 BHP shares for each Anglo share, valuing Anglo shares at £25.08 apiece ($42.90). On the London Stock Exchange, Anglo shares closed up 16 per cent, to £25.60, giving the company a market value of £30-billion ($51.3-billion) and reversing a losing year on the stock market. BHP shares closed down less than 1 per cent.

Ben Cleary, portfolio manager at Australia’s Tribeca Investment Partners, which holds stakes in BHP and Anglo, said competing bids could emerge for Anglo, given the high demand for copper. “I think it’s a good deal for BHP. Anglo is obviously very much in play now and there’s probably room for others to interlope,” he told Reuters, “This is going to set the whole sector on fire.”

In a separate interview with The Globe and Mail, Mr. Cleary said that demand for copper was also being driven by the rise of artificial intelligence, whose integrated circuits require copper. “There is not just one catalyst for the price rise,” he said.

BHP said its goal was to boost its “exposure to future facing commodities through Anglo American’s world class copper assets.” Copper produces about 40 per cent of Anglo’s profits; the company has substantial ownership or joint ventures in five big copper mines in Chile and Peru. Collectively, they give Anglo about 760,000 tonnes of copper production a year.

But BHP’s bid is complicated and has been compared to buying a six-bedroom house in order to get the garage. Mr. Henry does not want all of Anglo, whose conglomerate structure includes diamonds, through its De Beers subsidiary, as well as nickel, platinum, iron ore, manganese and crop nutrients through its troubled Woodsmith potash mine in England.

BHP’s offer is conditional on Anglo demerging its entire holdings in Anglo American Platinum (known as Amplats) and Kumba Iron Ore, two divisions that BHP does not want. Were the spinoffs to happen, Anglo would be focused largely on copper and diamonds. BHP said De Beers, along with other assets, such as Anglo’s nickel business in Brazil, would be subject to a “strategic review post-completion,” suggesting they might be put on the auction block. Anglo reportedly has been holding discussions for some time with potential buyers of De Beers.

Analysts said they doubted that BHP’s opening proposal would succeed. In a note, Jefferies & Co. of New York said a “price of at least £28 [per share] would be necessary for serious discussions to take place, and a takeout price of well above £30 per share would be the outcome if other bidders were to get involved.”

Most of the big mining companies are trying to bulk up in copper. Last year, Glencore GLNCY made a hostile, US$22.5-billion takeover offer for copper-heavy Teck Resources Ltd. TECK-B-T of Vancouver. The bid was rejected, but Teck later agreed to sell its metallurgical coal operations to Glencore. A year earlier, Rio Tinto Ltd. RIO-N completed its purchase of Canada’s Turquoise Hill Resources Ltd. for US$3.1-billion, giving it 66 per cent of the enormous Oyu Tolgoi copper project in Mongolia.

BHP did not make a rival bid for Teck but has expressed interest in buying Glencore’s copper assets in recent years, specifically the Collahuasi copper mine in northern Chile, which is a joint venture with Anglo, and the Antamina mine in Peru, a joint venture with BHP and Teck.

Glencore has always been aggressive and opportunistic on the mergers and acquisitions front. But given its agreement to buy 77 per cent of Teck’s coal division for almost US$7-billion – a deal that has yet to receive Canadian regulatory approval – it may decide that it cannot take on another big acquisition so soon. Rio Tinto seems better placed to mount a rival offer, or a Chinese company.

Political dimensions make any bid for Anglo complicated. The company’s biggest shareholder is South Africa’s state-owned Public Investment Corp. While PIC did not comment on BHP’s offer price, it did say that the mining sector “remains a critical part of the South African economy, impacting a wide variety of stakeholders, therefore, new opportunities that may arise in the sector need to take these factors and long-term sustainability into account.”

Later on Thursday, South Africa’s mineral resources minister, Gwede Mantashe, told the Financial Times that he was not in favour of the BHP proposal because the country’s previous experience with the company was “not positive.”

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