Rio Tinto, not Anglo American, 'is BHP's Real Target'

The growing importance of the critical minerals market has been a hot topic for some time, but the ongoing takeover and restructuring drama prompted by BHP’s takeover bid for Anglo American has taken things to an entirely new level.

Barely a day goes by without a further instalment in the Anglo-BHP saga. 

This week alone, Anglo caved to pressure from investors and announced plans to protect itself from takeover attempts by selling its diamond business, De Beers, as well as its platinum and steelmaking-coal assets.

It then announced a global freeze on recruitment, as it focuses on its copper business, in a bid to ride the coattails of the global energy transition, for which copper is essential. Electric vehicles use more than twice as much copper as internal combustion engine vehicles. 

Anglo American owns three of the top 10 producing copper mines in South America, and there is ample room for growth. 

And it is copper that is at the heart of BHP’s attempts to buy Anglo. To date it has had two offers rebuffed. The latest bid, of US$42.7bn, was dismissed as “highly unattractive for shareholders” by Anglo. That was preceded by an initial $38.8bn bid, which Anglo branded “opportunistic”. 

Anglo American restructuring 'decisive' - CEO Wanblad

Anglo American CEO Duncan Wanblad said the company’s restructuring is a “clear, compelling and decisive plan”, and that it will unlock value for shareholders by creating a “radically simplified company focused on world-class assets”.

Wanblad added that, by 2025, he expected Anglo to be so highly valued that “if anybody wants to buy us at that particular point in time, they are going to have to pay an enormous amount of money for it”.

Presumably, by ‘anyone’, Wanblad means BHP, yet some believe that despite its takeover bids, BHP is using Anglo merely as a rangefinder, and that its ultimate takeover target is actually Rio Tinto, the British-Australian multinational that’s the world's second largest metals and mining corporation.

John Meyer is a Partner and Mining Analyst at SP Angel, a capital markets advisor and broker. He is one of those who doubts Anglo American is BHP’s intended target.

“I think Anglo is an easy target,” Meyer told CNBC. “We know that BHP and Rio Tinto have had discussions in the past, and might be quite keen to get together.”

Meyer feels that BHP’s move for Anglo is merely the “opening shot” as mining companies jostle for position as the energy transition is set to pick up pace.

He says: “There's a fairly severe shortage of copper coming at us. The Chinese state planners are still working out how to get enough copper to feed their EV industry." 

At present, the copper price is set to break through the $10,000 a tonne mark, but industry experts point out that, for big mining companies to start developing much-needed new copper mines, the price needs to reach between $12-15,000 a tonne. And with new copper mines taking an average of 23 years to come on line, there are unlikely to be any quick fixes.

Copper concentrate shortage shaping global market

Meyer says: “We know there's a shortage of supplies of copper concentrates, and  China is faced with having to close a couple of copper smelters because they can't get the concentrates to feed them.”

Meyer adds that, in the copper market “there's a lot to play for”, and feels that BHP’s Anglo bid “is a bit pathetic”, and it’s this that convinces him Anglo is not the big prize for BHP. 

Whatever happens between Anglo, BHP, Rio Tinto and elsewhere in the copper industry, all of it will play out  against a backdrop of Chinese manoeuvring.

“BHP and Anglo together account for about 10% of the copper market but China already runs more than that in terms of smelting capacity. So European and US policy makers are rightly concerned. 

“China controls a lot of copper production in the Congo but it is going to need to look for more-secure sources of supply. 

“This horrifies the European Union, who fear it  is going to be squeezed out but unfortunately, it doesn't have the mechanisms in place to compete with China at this point in time.”