UK Miners' Future Uncertain After Collapse of BHP-Anglo Merger?

The recent failed merger between BHP and Anglo American raises questions about UK-listed mining companies. Will the collapse of the mega-merger send those who benefited to the backseat?

The Deal That Wasn't

BHP's offer to acquire Anglo American, first launched in April and concluded last Friday, valued Anglo American at £39 billion and would have been one of the largest deals of the decade. Several UK miners, like Antofagasta and Rio Tinto, benefited from the announcement despite the sector being consolidated following BHP's acquisition of Oz Minerals and Glencore's snap of assets from Teck and Elk Valley. Historically high prices in 2024 for certain commodities, such as gold and copper, have pushed large companies to replace their reserves. The failed bid may indicate that major M&As will face further difficulties as interest rates remain elevated and make other companies more cautious about being part of similar mega-mergers.

Prior to the potential merger, there were renewed concerns about major companies leaving the UK exchange, as BHP's takeover of Anglo American would have removed one major listing in London. Rio Tinto, the other large UK-listed miner, is facing pressure to leave its UK listing as well, citing regulatory hurdles, along with Royal Dutch Shell, the largest company on the FTSE 100, saying they would be better positioned in New York. In this challenging environment, UK-listed Horizonte Minerals entered administration last month after failing to acquire sufficient funds, raising questions about liquidity depth for commodity producers in London.

No Smooth Sailing Ahead

Following BHP's failed deal, Anglo American made it clear it is not up for sale as it embarks on an extensive restructuring programme to revitalise the business and improve its competitive position in the market. Anglo now plans to sell its DeBeers assets as well as exit its coal operations in a move aligned with the energy transition. Outright hostility towards fossil fuels among European investors is seen as one of the reasons other producers may look elsewhere for public listings. With its focus shifting to energy transition metals, Anglo American appears to be responding to such pressures.

However, not all are pleased, with UBS downgrading Anglo American after the deal collapsed, specifically citing uncertainty around a still-independent company's ambitious asset sale plans. As Anglo American was unable to sell itself and demanded a higher valuation, it will presumably seek a higher price for the assets it does wish to dispose of amid a challenging interest rate environment. Still, analysts remain optimistic that Anglo could receive other offers despite insisting that it is not for sale. It may set a precedent for additional deals in the mining sector as UK companies are generally viewed as undervalued and increase competition. As such, the long-term impact could be positive for the mining industry despite financing issues for such large transactions in London. In fact, Antofagasta's smaller size puts it in a position where BHP may overcome the financing problem if it makes a smaller offer.

Antofagasta Eyes Potential Neckline

Antofagasta saw its share price rise 16% from its early May low of 2085 GBX to 2420 GBX. However, since early last week, it has fallen back to 2180 GBX, reducing these gains at just over 4%. After failing to reach its flag pattern measured-move target of 2500 GBX, the stock price weakened below the breakout point of 2250 GBX, risking further declines back to its May low of 2085 GBX, where a potential head-and-shoulders (H&S) pattern may begin forming, and even below the 2000 handle. However, if prices soar past the potential right shoulder at 2335 GBX, the overall uptrend may continue towards the original measured-move target and potentially beyond.

Source: SpreadEx / Antofagasta

Key Takeaways

The failed BHP-Anglo merger raises questions about UK-listed mining companies as the industry consolidates in a challenging interest rate environment. Companies are reconsidering their London listing, with Rio Tinto and Shell having cited regulatory issues in considering moves to New York and Horizonte Minerals' administration showed liquidity challenges for UK commodity producers. As Anglo American now plans extensive restructuring aligned with the energy transition, it also signalled that it would not be sold despite UBS downgrading it after the deal failed. While analysts remain optimistic about other offers, financing large UK deals remains challenging, though Antofagasta's smaller size could allow a bid.