Top executives of BHP Billiton are said to have told a range of stakeholders while on a charm offensive in Johannesburg this week that their $39bn (about R720bn) bid for Anglo American — minus its South African assets — is not a “must do” transaction for the Australian mining giant.
Business Times understands that BHP CEO Mike Henry led the mission to South Africa to meet a range of stakeholders including local shareholders of both companies, government leaders and other parties with an interest in the deal.
The trip comes as the proposed takeover is mired in political controversy on the eve of the elections. Observers have said the exclusion of South African assets from the deal was largely because of tough operating conditions in the country, including the failure of Transnet, rising crime, water licence issues and rigid labour laws.
At meetings with investors, Henry and his team would have explained why they were not interested in Anglo American Platinum (Amplats) and Kumba Iron Ore, and sought to allay concerns that this was a vote of no confidence in South Africa.
BHP believes this structure unlocks immediate value, delivering shareholders and stakeholders access to future growth opportunities and investment currently not available under the existing ownership structure
— BHP statement
They would have also made it clear that BHP will not overpay for Anglo and will walk away if they no longer see value in the transaction, meaning it was not a “must do”.
Having spent a decade assuring shareholders that it will only pursue deals that make financial sense, BHP is expected to have strongly restated the view that it will not chase Anglo at all costs.
Its proposal — which would create the world’s largest copper producer — is dependent on Anglo first unbundling its controlling stakes in Amplats and Kumba to shareholders.
However, the Anglo board rejected the initial bid outright, with chair Stuart Chambers describing it as “opportunistic” and saying it “fails to value Anglo American’s prospects, while significantly diluting the relative-value upside participation of Anglo American’s shareholders relative to BHP’s shareholders.”
The minister of mineral resources & energy (DMRE), Gwede Mantashe, has also come out strongly against the bid, saying the government would have blocked it if it had the power.
On Thursday, as Henry and his team met with stakeholders, BHP issued a statement that its exclusion of South Africa-based assets from the proposal was not a reflection of the country as an investment destination.
“Under the proposed structure, shares for Anglo Platinum and Kumba would continue to be listed on the JSE, and the companies would continue to be run by established South Africa-based management teams. The BHP Group has been listed in Johannesburg for multiple decades and intends to maintain its listing on the JSE. The proposed structure does not reflect a view of South Africa as an investment destination and is based on portfolio and commodity considerations,” the company said.
It is believed that BHP top brass met officials of the DMRE, although it was not clear if they also met Mantashe.
It is further understood that BHP bosses would have told government officials that the company operates in even tougher jurisdictions in South America and in Australia where labour laws are strict.
They are also said to have indicated why unbundling Amplats and Kumba made sense since this would create an opportunity for the two mining houses to largely be controlled by South African shareholders and management teams who can reinvest profits back into their operations locally instead of repatriating this money to the UK to pay off debt or reinvest in other non-South African assets.
“South Africa will continue under BHP’s proposal to benefit from Anglo Platinum and Kumba operating as independently listed South African companies investing in local operations, communities and jobs. BHP attaches great importance to creating social value for society and communities.
“BHP believes this structure unlocks immediate value, delivering shareholders and stakeholders access to future growth opportunities and investment currently not available under the existing ownership structure,” the company said in the statement.
Kumba has had to scale back production and build up stockpiles because Transnet is unable to ship sufficient volumes to Saldanha Bay, while Angloplat has seen its profits drop significantly due to falling platinum group metal (PGM) prices.
BHP has iron ore assets in Western Australia and Brazil, but it’s not keen on growing its iron ore portfolio.
Markets believe it will table a revised offer for Anglo. Should that be accepted, the merged entity would have a portfolio of tier-1 assets, including iron ore and metallurgical coal and future-proof commodities, including potash and copper, after taking over Anglo’s copper operations, which are concentrated in South America. It owns the Quellaveco project in Peru, and Los Bronces and Collahuasi, both in Chile.
Reuters reported on Friday that rival Glencore was considering making a play for Anglo, which could spark a bidding war for the 107-year-old miner.
A local industry commentator, who spoke on condition of anonymity, was critical of how BHP structured the Anglo proposal, especially the exclusion of locally based assets.
They put a derisory offer on the table. They have underestimated the execution of risk; they didn’t take South Africa seriously. They can’t explain why they don’t want any African assets including top quality iron ore, and now they are scrambling to prove they don’t hate African mining
— Unnamed analyst
“They put a derisory offer on the table. They have underestimated the execution of risk; they didn’t take South Africa seriously. They can’t explain why they don’t want any African assets including top quality iron ore, and now they are scrambling to prove they don’t hate African mining.”
Asief Mohamed, chief investment officer at Aeon Investment Management, said the visit by BHP top brass to South Africa and their overtures to the government and investors was predictable.
“It is reasonable to assume BHP planned to engage with the South African government throughout the merger proposal process to address any concerns. Therefore, BHP’s visit to South Africa is unsurprising,” he said.
Mohamed said the Australian mining giant had explained that its decision to exclude Amplats and Kumba from the acquisition was specifically related to higher costs associated with underground mining of PGMs.
But some observers believe that should a revised offer succeed under the current terms, South African regulators could frustrate efforts to unbundle Amplats and Kumba.
Mohamed said it was possible that a competitor could make a bid for Anglo if BHP’s revised offer was not accepted.
“Given the current environment of constrained copper supply, it’s possible that another company might emerge with a higher bid for Anglo American, particularly due to the attractiveness of its copper assets.
“[Its] attractive asset portfolio, particularly its strong position in copper, is a key driver of BHP’s takeover interest. The combined entity would become the world’s largest copper producer, potentially granting significant market influence,” he said.
Seleho Tsatsi, an investment analyst at Anchor Capital, did not want to comment on Henry’s visit specifically but said it would be understandable for BHP to walk if the deal no longer made financial sense.
“There obviously comes a valuation at which the deal no longer makes financial sense to BHP. The question is what that valuation is and how close to it is BHP willing to go,” Tsatsi said.
He would also not be surprised if Glencore made a move for Anglo.
“Glencore has an acquisitive history. It has focused on growing its portfolio of metals that would benefit from the world’s transition to a greener economy. Anglo American’s copper assets certainly fit that bill. Glencore, of course, is also acquiring Teck Resources’ steelmaking coal assets at the moment. In that transaction, Glencore initially pursued Teck’s base metals business as well (which had a significant copper component to it).”
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