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Battle over Anglo copper assets tests BHP’s resolve as deadline approaches

ANALYSIS-Battle over Anglo copper assets tests BHP’s resolve as deadline approaches

BHP’s bid for Anglo exposes flaws in its portfolio

Anglo-Saxon investors want BHP to complement share offer with cash

By Clara Denina and Félix Njini

LONDON/JOHANNESBURG, May 24 (Reuters)BHP BHP.AX Anglo American to test decision to add more copper to its portfolio AAL.L Investor demands for a simpler company-wide offer or a cash incentive to close a deal that could become the largest in mining history.

Anglo on Wednesday gave BHP, the world’s largest listed miner, additional time to submit a binding offer, after rejecting three takeover proposals that it said undervalued the company and would be difficult to execute.

The one-week window offers BHP another chance to beat Anglo CEO Duncan Wanblad’s restructuring plan by convincing those concerned about the value and structure of the deal, investors and analysts told Reuters.

The Australian miner is fighting to secure Anglo’s world-class, longest-lived copper assets in Latin America. Still, the complicated structure of his deal, rejection by Anglo’s board and demands from investors for a bigger payout, will test how far he is willing to go to obtain the assets, they say.

BHP’s deal initially offered Anglo investors the prospect of an upfront payout compared to its own company’s spin-off plan, but investors are starting to find holes in BHP’s asset portfolio and how much it needs to build its copper business.

“(BHP) wants to reposition its portfolio sooner rather than later or it will be left out of future deals because its paper will be rated too low,” said Ian Woodley, portfolio manager at Old Mutual, which owns shares in both companies.

“BHP probably thought it had found a way to get Anglo’s copper at a fair price by getting Anglo to get rid of its poison pills rather than having to clean up the structure itself, but that hasn’t worked so far.”

Anglo rejected BHP’s offers three times in a month, including the latest revised offer, which valued it at 29.34 pounds per share or 38.6 billion pounds ($49.05 billion). Anglo has himself outlined a plan sell its less profitable coal, nickel, diamond and platinum units to focus on expanding copper production to more than 1 million tonnes within a decade.

At stake are the giant Anglo Colluhuasi, Quellaveco and Los Bronces mines in Chile and Peru, whose rich copper deposits make them longer-lived assets. The three mines are expected to produce around 532,000 tonnes of copper this year.

Macquarie analysts forecast BHP’s copper production will peak at around 1.9 million tonnes in 2026, then gradually decline to around 1.6 million tonnes in 2028 with rising costs. This will be mainly driven by an expected drop in production at its giant Escondida mine from a peak of around 1.3 million tonnes in 2025 to around 900,000 tonnes in 2028.

Copper is key from energy to construction, and is expected to benefit from the transition to green energy through additional demand from the electric vehicle sector. New applications, including data centers for artificial intelligence, are creating buoyant demand for the metal.

Traders told Reuters that while copper concentrates at the world’s largest copper mine, Escondida in Chile, contain between 24% and 28% metal content, a standard level for the industry, recent tonnages showed that this content is directed towards the lower end of the range.

The setbacks at Escondida, which has been operating since the 1990s, underscore the challenges facing the entire industry due to falling grades and a lack of new deposits among Latin American producers.

Cash sweetener

While Anglo agreed to participate, it reiterated that BHP’s condition to immediately separate Anglo Platinum AMSJ.J and kumba iron ore KIOJ.J hinders the execution of the agreement, creates uncertainty in the two South African units and puts the value for their investors at risk.

Anglo’s own plan to retain Kumba in the cut business could be an example of BHP refining the structure of its offer, said a fund manager at Sanlam Investment Management, which owns shares in both companies.

“The structure is the key point of contention. If they (BHP) are willing to do a deal, for example with a cash offer or adding Kumba to the mix, then it could be enough for the Anglo board to get over the line,” he said. .

BHP said on Wednesday that the proportion of shares it is offering to Anglo shareholders is final unless there is an offer from a third party or if Anglo’s board “is willing to recommend an offer on better terms”.

The miner does not plan change the structure of its offer and is also not adding cash to the deal, a source told Reuters.

A major Anglo-Saxon investor told Reuters that BHP’s third offer is still below the investor’s minimum fair price expectation of 31.93 pounds per share. The shareholder said the most BHP could offer is £37.44, to reflect the full value of Anglo.

And although Anglo said it is involving BHP, those talks only involve lawyers and bankers from both companies, a separate source said.

The South African Public Investment Corporation, the second-largest Anglo-Saxon investor, said on Wednesday, ahead of BHP’s third bid, that the initial proposal needed “significant revision.”

A better option would have been for BHP to buy all of Anglo and spin off the assets later, Old Mutual’s Woodley said.

“I’m not sure offering cash would make much of a difference. Would it be effective now or effective once the unbundling has occurred?” said Woodley.

“Has any deal worked in any industry on the basis that an acquisition is agreed with terms that are long-term but that the proportions or prices are fixed now?”

($1 = 0.7870 pounds)

Reporting by Clara Denina and Felix Njini, additional reporting by Julian Luk and Melanie Burton; Editing by Veronica Brown and Susan Fenton

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