2 weeks ago
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Thwarted by Anglo’s brisk rejection of its initial $39-billion all-share merger proposal, BHP – the world’s largest mining company – has launched a charm offensive in South Africa aimed at winning local hearts and minds.
The proposal, which Anglo rejected as “opportunistic”, would see the target first spinning off Anglo American Platinum and Kumba Iron Ore, giving rise to speculation that BHP wants Anglo’s coveted copper assets without the baggage of South African risk.
In a Thursday release pointedly headed “Clarification Statement: South Africa”, BHP said this was not the case.
“The proposed structure does not reflect a view of South Africa as an investment destination and is based on portfolio and commodity considerations,” the statement said.
“The BHP Group has been listed in Johannesburg for multiple decades and intends to maintain its listing on the JSE.”
“South Africa will continue under BHP’s proposal to benefit from Anglo Platinum and Kumba operating as independently listed South African companies investing in local operations, communities and jobs…
“BHP believes this structure unlocks immediate value, delivering shareholders and stakeholders access to future growth opportunities and investment currently not available under the existing ownership structure.”
Senior executives dispatched
The statement comes as BHP has dispatched senior executives including CEO Mike Henry to South Africa in a bid to woo local investors and regulators, according to Bloomberg.
Daily Maverick has verified this and has been reliably informed that senior BHP executives have been in South Africa in recent days. One source told Daily Maverick that Henry was on Thursday in Cape Town, where many of South Africa’s asset and fund managers are based.
Persuading such investors would be one of the keys to unlocking the deal.
The fact that BHP is in South Africa and is issuing statements saying its original proposal is not a snub to the country strongly suggests that it remains firmly on the hunt for Anglo and that a new proposal may be in the offing.
Regulatory hurdles that it could face here include the possible need for the Competition Commission to approve the unbundling of Amplats and Kumba, which would see Anglo’s shares distributed to its existing shareholders.
BHP will have a tough sell with some in government, notably Minerals and Energy Minister Gwede Mantashe, who told the Financial Times last week that, in his view, South Africa’s experience with BHP had been “not positive” as it had triggered capital flight from the country.
Read more in Daily Maverick: Minister Gwede Mantashe vents his displeasure over BHP’s unsolicited bid for Anglo
Manatshe has no doubt also been irked by what he sees as a smear on South Africa in the precondition to hive off Amplats and Kumba.
In fairness to BHP, it probably does not make strategic sense to expand an already diverse portfolio into platinum group metals, and it hardly needs Kumba’s iron production. Having said that, the South African risk factor cannot be completely discounted in its calculations.
But South Africa is little more than a sideshow. BHP’s real interest in Anglo is driven by the latter’s global copper portfolio, notably in Latin America.
Major mining houses are scrambling for new copper resources as the red metal is seen as critical to the green energy transition. Other trends such as urbanisation are seen as fuelling demand for its more traditional uses in basic infrastructure development.
Finding new copper resources and bringing them to production is an arduous and costly task in the face of tightening environmental regulations worldwide and a skills shortage in the mining sector.
The bottom line is that it is cheaper for a big company with a robust balance sheet to buy existing copper assets than it is to attempt to find and develop them from scratch.
The Anglo/BHP saga is far from over, and other mega-merge proposals involving copper are likely to be on the horizon. DM
