The mining world got a jolt of excitement in April when BHP, the world’s largest mining company, made a takeover approach to its smaller British rival Anglo American.
BHP initially proposed offering 0.7097 of a share for each Anglo share held, valuing Anglo at £31.1bn. A key condition of the proposal was the demerger of Anglo’s South African assets, Anglo American Platinum and Kumba Iron Ore.
After Anglo rejected the proposal, BHP returned in early May, increasing the offer ratio to 0.8132 of a share for every Anglo share held. When that was again rejected, BHP submitted a final offer ratio of 0.886 shares for each Anglo share and Anglo agreed to extend the deadline for BHP to make a firm offer by a week to May 29 and engage with BHP.
Hours before the deadline, BHP announced it would not be making a firm offer for Anglo, with CEO Mike Henry citing capital discipline and “South African regulatory risk and cost”. Unless there is a rival bid for Anglo, BHP has to wait at least six months before it can consider another tilt for Anglo under UK takeover laws.
BHP has made no secret of its desire to increase its exposure to copper and acquired Australian producer OZ Minerals in early 2023 for A$9.6bn. There was little doubt the driving force behind the Anglo approach was copper.
Anglo has stakes in three of the world’s top 10 copper mines, Collahuasi and Los Bronces in Chile and Quellaveco in Peru. The company produced 826 000t of copper in 2023 and has mapped out a pathway to 1mt/y Combining that with BHP’s 2024 financial year guidance of 1.72-1.91mt would make the enlarged company the world’s largest copper producer.
Analysts from Citi say BHP could have potentially acquired the company at a cheaper price than looming investments at Escondida in Chile, the world’s largest copper mine.
The problem is that this level of lower capex is now becoming less the norm and more the exception – Citi analyst
BHP is facing declining head grades at Escondida, with Citi pointing out the sulphide ore reserve grade was just 0.57% versus an average concentrator feed grade of 0.85% in the nine months to March 31, 2024. BHP has conceded that Escondida output would decline by about 30% from the 2027 financial year.
The company is studying a replacement concentrator, but a final investment decision isn’t expected until 2027 or 2028 and wouldn’t be commissioned until the 2030s.
Citi noted expanded concentrator throughput would require additional high-cost desalinated water and BHP was currently trialling bioleaching of sulphide ores using newer technologies to potentially find a lower-cost pathway.
“Our generic copper project modelling using consensus long-term copper price of circa $4 per pound says that capital intensity needs to be $20 000 per ton of annual copper output or less to generate an acceptable return for a mining company on a greenfields Chilean project,” Citi said.
“The problem is that this level of lower capex is now becoming less the norm and more the exception. It is possible that new, larger copper concentrator(s) at Escondida with a desalination requirement could have capex as high as $30 000/t of annual output and this would require a copper price of $6/lb for an acceptable internal rate of return.”
Meanwhile, BHP has aspirations to grow its South Australian copper division from 310 000-340 000tp/y to 500 000tp/y and eventually as high as 700 000tp/y.
However, even after accounting for the options in copper, as well as projected iron ore production and the introduction of potash production, Citi said production growth would continue to be BHP’s Achilles heel. Therefore, the market will be on red alert in late November when BHP will be free to re-engage with Anglo.