BHP's Anglo-American Bid Intensifies Copper Mining Consolidation

Negotiations in the copper mining industry continue to intensify as Anglo-American seeks more money while BHP remains committed to acquiring its target.

Copper Demand Rises as the Energy Transition Accelerates

It is widely known that the global energy transition will require extensive electric transmission infrastructure, driving significantly increased copper demand in the coming years. With copper prices up 15% this year, miners are focused on securing a steady ore supply to sustain production levels. However, the traditional strategy of exploration efforts and new mine development can take decades to realise. An alternative is to emulate the buy-out strategy of the gold mining sector, as both BHP and Anglo-American have experience in buying out competitors who hold the supply.

This appears to underlie BHP's recent £31 billion offer to acquire Anglo American, signalling investor interest in copper mining. At the time of the bid, Anglo American's market capitalisation was just £29 billion, making it a sensible transaction for BHP. This would allow full integration of the two companies to strengthen copper production capabilities for the decade ahead.

Anglo-American Sparks Bidding War After Rejecting Offer

The directors of Anglo-American rejected the offer, deeming it undervalued the company. The media had been speculating about a merger before the official announcement, leading the UK-based miner's share price to hit a year high and above the offer price. BHP is expected to "almost certainly" offer a higher price, as it has until the 22nd of May to offer a binding proposal. However, the rejection also opens the door for other rivals to bid for the company, intensifying the chances of a bidding war and what could become the largest deal in decades for the sector.

Even at the rejected offer price, the deal is larger than the previous record, BHP's takeover of Xstrata at $38.3 billion. Recently, BHP bought Australian miner Oz Minerals as part of its drive to acquire more copper and nickel assets. A potential fallout from a deal materialising is that Anglo American could sell its De Beers unit, which does not fit BHP's business model. The potential acquisition is seen as part of a wave of consolidation in the industry, with Glencore's recent bid for Teck Resources.

​Anglo-American H&S Completed

Anglo-American has risen approximately 20% over the past few days, likely completing a 'head and shoulders' pattern following the drop to 1650 GBX. However, the share price is yet to break above the prevailing downward trend, which sits slightly above its current price of 2550. Should prices fail to break through, the stock could retreat towards 2300 whilst maintaining an overall positive outlook. Falling as low as 2070 may reopen the potential to reach multi-year lows should bears lose the 2000 handle. Conversely, a clear break above the downward trendline may see 2930 provide the next level of resistance, followed by 3320.

Source: SpreadEx/Anglo-American

Key Takeaways

BHP's £31 billion offer to acquire Anglo-American signalled interest in its copper assets. Negotiations continue to intensify as Anglo-American rejected the offer as the acquisition news have sent its stock price up some 2%, seeking a higher price. The rejection risks sparking a bidding war that could see an even larger deal emerge.