SYDNEY/LONDON -- Australian mining leader BHP Group has proposed a 31.1 billion pound ($38.8 billion) takeover of U.K. miner Anglo American, eyeing the latter's copper assets as demand for the metal surges for use in renewable power and electric vehicles.
BHP said in a statement Thursday that, along with Anglo's assets, the acquisition would bring "long-term growth potential."
Anglo confirmed that it had received "an unsolicited, non-binding and highly conditional combination proposal" from BHP.
Reuters reported that the deal would likely rank among the 10 largest acquisitions in the mining industry.
Anglo produces iron ore in South Africa and other countries, as well as coking coal for steelmaking. It is also a key player in diamonds, with world leader De Beers under its umbrella.
In proposing the acquisition, BHP is after Anglo's copper mines in Chile and other countries. Copper is a big business for the latter company, accounting for 20% of sales.
Copper demand is expected to soar as decarbonization progresses. Offshore wind power generation requires 8,000 kilograms of copper per megawatt, about seven times as much as coal-fired power generation, according to the International Energy Agency. Solar power requires 2.5 times as much copper as coal.
Electric vehicles can contain around 53 kg of copper per vehicle, more than double the amount for combustion vehicles. Although sales are slowing, the IEA expects EVs to account for more than 50% of global new vehicle sales in 2035.
But copper supply has struggled to keep up. Good mines are being depleted, while environmental regulations and other factors are hampering approval for new ones. The copper industry faces what has been described as the "30-40-50 problem," where, compared with the past 10 years, the average new project is 30% smaller, costs 40% more and takes 50% longer to develop.
For companies like BHP, it makes more sense to acquire existing assets than to spend money developing new mines. BHP acquired Australian copper company OZ Minerals in May 2023 for 9.6 billion Australian dollars ($6.2 billion at today's rates). The Anglo acquisition proposal is an extension of this strategy.
Meanwhile, Anglo has been struggling, lowering some production forecasts due to falling prices for precious metals. With its stock price falling by more than 10% in the past year, BHP may have deemed now a good opportunity to propose an acquisition.
BHP has been reviewing its asset structure amid the decarbonization trend. It spun off a portion of its metals business in 2015, including aluminum, and sold the oil and gas division to an Australian energy major in 2022.
As part of its proposal, BHP is calling for Anglo to spin off its precious metals and iron ore businesses, which has become unprofitable. Anglo is a major producer of platinum and palladium, which are used in exhaust gas catalysts for diesel and gasoline vehicles, but prices have slumped in recent years due to the spread of EVs.
Restructuring of assets is a common challenge in the resource industry. British-Australian giant Rio Tinto sold all coal interests and acquired an Argentinian lithium-related business in 2022 to tap into EV-related demand.
U.S. gold miner Newmont last year acquired Newcrest Mining, an Australian company with copper assets.
"The industry is at a turning point as it faces the end of the era of chasing volume in response to China's rapid growth, as well as the depletion of resources," said Takayuki Homma, chief economist at Sumitomo Corp. Global Research. "It's possible that industry consolidation through mergers and acquisitions will continue in the future."
BHP has proposed major acquisitions in the past that never materialized. It made a takeover bid for Rio Tinto in 2007 but abandoned the offer after a sharp decline in commodity prices.
Anglo shares began Thursday trading around 10% above the previous day's close as the market reacted positively to news of the proposal.
However, a deal between the companies would give them an outsized influence in the copper market, which could make it subject to approval by regulators.
Source : Nikkei Asian Review
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