June 23, 2024
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Mike Henry, CEO of Australian mining company BHP, stands beside a photograph of the company’s Jansen potash project, located in Saskatchewan, on Oct 17, 2023.Fred Lum/The Globe and Mail

The Canadian head of BHP Group Ltd. BHPLF says the world’s biggest mining company will remain disciplined as it chases an acquisition of struggling competitor Anglo American PLC, as concerns arise about the complexity and timelines around its US$43-billion takeover offer.

Speaking at a mining conference in Miami, BHP chief executive Mike Henry said that his company’s twice-rejected proposal remains “quite compelling,” and he signalled the Australian miner won’t overpay in its efforts to win over Anglo’s board.

“We have a very, very hard-won reputation for discipline when it comes to capital allocation and we do not take that lightly,” he said.

London-based Anglo on Tuesday announced an alternative plan aimed at fending off BHP’s advances that will see it attempt to unload large swaths of the business. Anglo is looking at selling its metallurgical coal, diamonds and nickel businesses, and demerging its platinum segment. The company wants to streamline Anglo in order to zero in on its copper, iron ore and fertilizer businesses.

Anglo CEO Duncan Wanblad in a statement said that “a radically simpler business” will result in better operational performance and drive down costs. Anglo is urging shareholders to back its plan, after it rejected a second takeover proposal from BHP on Monday that was about 15 per cent higher than the company’s original approach.

Christopher LaFemina, an analyst with Jefferies said in a note to clients that Anglo’s strategy looks good on paper, but in practice it could prove to be problematic.

“The remaining business in theory would be a very compelling acquisition target to several potential buyers,” he said.

“But this restructuring will probably take 18 to 24 months to complete, and Anglo’s ability to execute on all of this is questionable.”

However, like Anglo’s new restructuring plan, BHP’s proposal contains many moving parts, and is contingent on Anglo ridding itself of key problem assets, including spinning off its control stakes in two South African businesses, Anglo American Platinum (Amplats) and Kumba Iron Ore.

Mr. Henry was asked after his presentation on Tuesday about the difficulties of executing on his plan, given the complexities involved.

He replied that he believed the strategy was “wholly executable,” and cited several examples of successful spin-outs that both BHP and Anglo have conducted in the past.

“The path towards spinning businesses out is relatively clear,” he added.

BHP in the past has walked away from M&A when it has gotten too expensive. A few years ago, it abandoned its plan to buy Canadian junior mining company Noront Resources Ltd. after going head-to-head with Australian competitor Wyloo Metals Pty Ltd.

But unlike that deal, so far, no other bidder has stepped up to counter BHP’s proposal for Anglo.

Anglo over the past year has performed poorly and its share price had fallen steeply, making it vulnerable to a takeover.

BHP is primarily interested in Anglo because of its copper business. If it buys Anglo, BHP will become the world’s biggest copper producer, bypassing Chile’s Codelco. The price of the industrial metal has rallied by about one-third over the past year to about US$4.90 a pound, only a few US cents below its all-time high, reached in March, 2022.

Copper is in a bull market in part because of fears over potential supply problems, including the forced closing late last year of Cobre Panama, one of the world’s biggest copper mines. It was ordered to close after Panama’s Supreme Court said that Canadian miner First Quantum Minerals Ltd.’s contract was unconstitutional.

BHP had already broadened its exposure to copper by buying fellow Australian miner Oz Minerals for US$6.4-billion last year.

BHP is far from the only major miner building out its copper business. Rio Tinto PLC in 2022 paid roughly $4.2-billion to buy the 49 per cent of Montreal-based Turquoise Hill Resources Ltd. it didn’t already own.

Vancouver-based Teck Resources Ltd. is in the process of selling its metallurgical coal business to Glencore PLC in large part so it can focus on its copper business.

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