The last time BHP Group made a move on another major mining company was Rio Tinto Plc in 2007. That could have been a blockbuster takeover worth $150 billion, but as metal prices fell in the wake of the Financial crisis struck and China expressed its dissatisfaction, the plan failed.
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(Bloomberg) — The last time BHP Group took a swing at another major miner, it was Rio Tinto Plc back in 2007. That could have been a blockbuster $150 billion takeover, but with metals prices crashing as the financial crisis took hold and with China signaling its discontent, the plan crumbled.
Having confirmed its takeover approach for rival Anglo American Plc on Thursday, executives at the world’s biggest digger will be hoping for a better outcome this time — even with one of the most complex deals the industry has seen in years.
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The industry as a whole has a dismal track record when it comes to acquisitions. Surprised by the extent of China’s economic acceleration at the start of the century and desperate for more supply, mining giants went on a buying spree. The result was that billions of shareholder funds were burned through poor purchases and investments in large-scale projects that were often overly ambitious.
BHP is no exception. The company failed in its pursuit of Potash Corp. of Saskatchewan Inc. valued at $39 billion. In 2011 he managed to purchase Petrohawk Energy Corp. worth $12.1 billion – but entering the shale oil industry proved to be a costly mistake. This led to the early departure of CEO Marius Kloppers, and BHP eventually cut its losses and sold the company to BP Plc in 2018.
BHP retreated into its role as Australia’s conservative heavyweight and flagship company and focused on dealing with the consequences of wasting money. It appropriately appointed technocratic executives and sold assets rather than buying them, spinning off what became South32 Ltd in 2015. It wasn’t until 2022 that the company began testing takeover opportunities again, securing the purchase of copper producer OZ Minerals Ltd. worth $6.4 billion.
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Read more: BHP makes $39 billion Anglo bid to create mining giant
“In the past it was difficult to execute the big deals and show how they add value. In many cases you extend the deals for a few years and get reversed,” said David Radclyffe, managing director of Global Mining Research in Sydney.
“Given that this business is a complex structure with complex geographies and a complex raw material mix – it appears that the real opportunity is copper, BHP simply needs to take the rest and deal with it as best it can – It actually brings in a few flags.”
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Eager to cherry-pick Anglo American’s best assets outside South Africa and seize copper deposits before the price of the metal really rises, BHP is betting on an unusually Byzantine structure. Its $39 billion share offering hinges on the spinoff of Anglo American Platinum and Kumba Iron Ore, and the company has already said assets beyond copper, metallurgical coal and iron ore would be subject to “strategic review.”
It will be difficult to complete such a deal.
There aren’t many buyers for companies like diamond group De Beers, and that’s before considering the added challenge of managing sales required by global antitrust regulators as China and other major jurisdictions consider what impact it could have. Making BHP the largest copper producer in the world.
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Even when such deals work, the consequences can be empty assets that weigh on the balance sheet for years. BHP’s purchase of Billiton in 2001 – the deal that created today’s miner – took years to clean up.
The willingness to accept such a lengthy and risky offer is in large part a reflection of the lack of options for miners looking to shift from the steel production industry – which has supported profitability for years – into the ingredients of a green energy transition. This includes many metals where the volume is simply too small, and others where there are simply too few assets to purchase – including copper.
“If you want to bring half a million tons of copper capacity to market today, you may have to buy things that you don’t necessarily want to get that particular part of the business out,” GMR’s Radclyffe said.
If share prices are any guide, BHP will likely have to pay more to win Anglo over. That will add even more complexity and test the balance between paying enough to capture the loot and paying less that would unsettle shareholders with long memories.
“BHP can probably get it done this time because it is at least the right time in the cycle,” said Matthew Langsford, a portfolio manager at Sydney-based Terra Capital, who is interested in copper but is not a shareholder in BHP or Anglo American. “We are a long way from bringing large new supplies of copper to market and inventories are low.”
– With support from Clara Ferreira Marques, Annie Lee and Yasufumi Saito.
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