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BHP doesn’t want Anglo American assets exposed to SA’s operational constraints, experts say

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There are likely to be other bids for Anglo American, which on Friday rejected BHP’s $39 billion (R741bn) unsolicited all-share buy offer that seemed to be targeted for the Johannesburg and London-listed mining conglomerate’s lucrative copper assets, even though some analysts believe the Australian mining company may raise its offer.

A mining industry expert said that BHP was less swayed by the potential of a recovery in platinum group metals (PGMs) prices in the short to medium term. File picture: Reuters, Siphiwe Sibeko

THERE are likely to be other bids for Anglo American, which on Friday rejected BHP’s $39 billion (R741bn) unsolicited all-share buy offer that seemed to be targeted for the Johannesburg and London-listed mining conglomerate’s lucrative copper assets, even though some analysts believe the Australian mining company may raise its offer.

BHP’s proposed acquisition of Anglo American, one of the country’s largest listed entities, seems to have courted widespread opposition from business and labour quarters.

In an interview with Business Report, Cratos Asset Management portfolio manager Roy Topol said on Friday that this was because under its rejected initial offer, BHP did not want exposure to South Africa, which is suffering operational constraints such as ports, rail, water and electricity inefficiencies.

“They (BHP) seemed to be keen on Anglo’s highly-valuable copper assets but don’t want South African exposure, as the offer specifically excludes Kumba and Amplats, which collectively make up around a third of Anglo’s value,” Topol said.

A mining industry executive with a large South African company also told Business Report on Sunday that BHP was opposed to taking over the South African businesses mainly because of the challenges with the operating framework, which was causing uncertainty as to future stability.

He said BHP was less swayed by the potential of a recovery in platinum group metals (PGMs) prices in the short to medium term.

“He (Mike Henry, CEO of BHP) is very aggressive on acquisitions, and he wants to show that he is daring, but at the same time the board wants a more focused growth in metals that are future proof,” said the executive.

“And that explains why the company is outrightly opposed to the PGMs and iron ore units of Anglo American.”

Nonetheless, BHP looks likely to raise its offer after the initial rejection by the board of Anglo American on Friday.

In a statement last week, Anglo American said the bid by BHP undervalued it, and also rejected the proposed restructuring, which placed conditions that Anglo Platinum and Kumba Iron Ore, be spun off.

Topol said other large resource companies may start coming up with rival bids as BHP has kick-started the process.

“The bid by BHP likely serves as an initial bid, a low-ball offer, to initiate negotiations,” added Topol.

“However, other major resource companies such as Glencore and Rio Tinto are undoubtedly watching closely.”

Topol said the BHP offer was “extremely opportunistic and insulting” as it would herald “a sad day” to see an iconic South African company being taken over.

However, Old Mutual’s Private Clients research analyst Sameer Singh viewed the initiative as “a net positive” for the two companies.

Old Mutual Private Clients holds the two companies under its South African portfolio.

“BHP shareholders would gain access to world class assets that offer meaningful growth and efficiency opportunities, while Anglo American shareholders would receive a fairer value far sooner than it would take for the market to replicate this,” he said.

For BHP, Singh said the rationale for the move was that Anglo American presented it with an opportunity to get “undervalued assets and copper scale” that was large.

Excluding Anglo Platinum and Kumba from the transaction would leave Anglo American with a commodity portfolio that includes copper, steel-making coal, nickel, marginal manganese, polyhalite and the remaining iron ore assets in Minas Rio, Brazil.

De Beers could also be up for sale, according to industry insiders.

“Anglo American is currently undervalued (and) some of their key commodities, namely platinum group metals, diamonds and nickel are facing challenging market conditions, which have undermined their respective valuations,” Singh said.

“If BHP were to acquire Anglo American at current price levels, BHP would be acquiring a meaningfully undervalued portfolio of assets.”

In any case, such as large transaction was likely to be complex, time consuming and subject to South African resistance, especially labour.

The Congress of SA Trade Unions’ spokesperson, Matthew Parks, said they were deeply opposed to the proposed sale of Anglo American.

Parks said the company’s wealth belongs to the South African people, with local workers’ pension funds having been invested in the mines.

“The wholesale selling of South Africa’s crown jewels is not in our economic interest as a nation. It’s sale would mark a painful flight of capital from our shores,” Parks said.

“We urge the government and shareholders to oppose this and if needs be, increase South African shares in them to ensure protection of critical economic assets for the country.“

– BUSINESS REPORT

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