BHP’s $39 Billion Takeover Offer Rejected, What’s Anglo American Truly Worth?

Published on: May 3, 2024
Author: Caroline Kong

The biggest news in the mining sector recently has been the proposed $39bn takeover of Anglo American (LON: AAL) by mining giant BHP Group (NYSE: BHP). Anglo American rejected the offer last Friday, citing that the offer undervalued the company.

According to Bloomberg on Thursday, Glencore (UK:GLEN) was looking at proposing a takeover bid for Anglo American, as well as BHP’s rival Rio Tinto Group, who is also interested in joining the bidding war.

It is worth pointing out that these potential acquisitions all point to Anglo American’s copper mining business. BHP has stated in its offer that it requires Anglo American to spin off its platinum and iron ore operations in South Africa.

Mining companies can be broadly divided into two types: pure-players, such as gold and copper, which are relatively easy to be valued; and diversified mining companies, like Anglo American. Diversification helps improve a company’s ability to withstand shocks to demand in any single market, but it also means that investors can’t fully benefit from a price rally if earnings are dragged down by weakness in other parts of the business.

In addition to copper, Anglo American owns other businesses in iron ore, coal, platinum and diamonds. Take the company’s iconic De Beers diamond business as an example. The business is incredibly difficult to value because its only real competitor is Russia’s sanctioned diamond miners.

Industry insiders point out that even without a major takeover from BHP or other rivals, Anglo American is under pressure to convince shareholders that its portfolio can fulfil its greater potential, and there is still the possibility that the company could eventually be split up with a view to realize the sum of the values of its various parts of the business.

It goes without saying that Anglo American’s copper business in South America is the jewel in the crown. According to analysts’ estimates, the copper business, if split into a separate, pure company, could even be valued higher than Anglo American’s overall market capitalization before Bloomberg broke the news of BHP’s takeover interest.

In fact, the South African iron ore and platinum businesses that BHP wants to spin off have much lower price-to-earnings ratios than Anglo American’s high-growth copper business. Anglo American also has some of the world’s best coking coal assets in Australia, and the company’s Minas Rio iron ore mine in Brazil is attractive to BHP Billiton. Growing market demand for the high-quality iron ore products produced by Anglo American will improve the range of raw materials BHP can offer its customers, potentially leaving BHP with more room to raise its offer, which could also be of interest to other iron ore giants such as Rio Tinto.

BHP acquired Australian copper miner Oz Minerals last year for $6.4 billion, and even if BHP was only interested in Anglo American’s copper assets, its initial bid was still about 13 per cent lower than the price per tonne it paid for Oz’s copper, according to Bloomberg calculations. Analysts and traders surveyed by Bloomberg believe BHP Billiton’s bid should be between £28 and £35 a share, an average of £30.43, which is about 15 per cent higher than Anglo American’s share price on Thursday.

It remains to be seen whether BHP will raise its offer next, or whether more miners will join the bidding for Anglo American.

Copper Iron M&A Mining