Monsters of Rock: Market awaits patient BHP as deal deadline nears

BHP’s (ASX:BHP) bid to acquire Anglo American and pull of the largest mining deal in history, eclipsing Rio Tinto’s (ASX:RIO) god awful US$38 billion 2007 purchase of Alcan, could come down to the decision it makes tonight.

Under UK takeover laws, BHP has until the end of the London trading day to make a formal offer for Anglo American to take to the London-listed mining giant’s shareholders in a attempt to pry its low cost South American copper mines.

The race could go down to the wire, with the Big Australian unable to make another unsolicited approach for six months if it allows the deadline to lapse.

And by that point it could be dealing with a very different Anglo, given the target’s decision to strip itself to the bones in a major strategic pivot designed to place investors’ faith in the vision of CEO Duncan Wanblad and its Stuart Chambers-led board.

Anglo has, reputedly, already fielded interest for its multi-billion dollar network of Queensland met coal mines.

While both Anglo and BHP want to spin off the listed Anglo American Platinum business in South Africa, Anglo’s restructure would go further.

It’s already committed to sell or close its nickel mines and divest or demerge its De Beers diamond business.

BHP wants to spin-off Anglo’s stake in South Africa’s Kumba Iron Ore, though Anglo wants to keep it to maintain its market share in the world’s largest metal market.

BHP only wants incremental growth in its iron ore division, easily covered by expanding its WA Iron Ore division, with the 24Mtpa Brazilian Minas Rio asset attractive to BHP because its high grade iron ore fetches a premium and is suited to low emission steel making.

Neither has delivered a plan for the 40% stake Anglo holds in BHP spin-off South32’s (ASX:S32) manganese mines, seemingly forgetting about their existence. Unlike Anglo, BHP wants the coal mines, which hold strong synergies with the projects in its 50% owned BMA business in Queensland’s Bowen Basin.

The businesses Anglo wants to keep — coal and iron ore — accounted for 72% (US$7.2b) of its earnings in 2023. Despite tailing off on lower prices and higher costs, its coal division remained a strong contributor at US$1.32bn.

The real question is whether BHP can justify a higher price than its already offered, one that will bring Anglo’s board to the table.

Its initial £25.08 a share bid and £27.53/sh follow up couldn’t get Anglo to open the books, with many analysts expecting £30/sh or higher would be required, though given the largely scrip nature of the deal BHP’s offer is closer to that mark than it was after a recent rise in its share price to three month highs.

Anglo shares have been largely unchanged in the past five days, currently fetching £26.87.

Walls of Jericho

Back in Oz and a far smaller copper mine was in focus today as AIC Mines (ASX:A1M) approved the development of the Jericho project adjacent to its Eloise project.

A 3km underground drive will be dug from Eloise at 125m below surface, taking two years to hit development ore in June 2026.

The project will transform AIC from a ~12,500tpa producer to ~20,000tpa, incorporating assets picked up in its takeover of Demetallica.

The drive will also double as an exploration drive to enable resource definition drilling of the Swagman discovery halfway between the two orebodies.

“The Eloise to Jericho link drive will have many long-term benefits – access will be
considerably easier to maintain during the wet season and also allows rapid drilling
and development of any new discoveries along the 3 kilometres of prospective strike,” AIC boss Aaron Colleran said.

“Importantly it can be commenced now with equipment and capacity that we already have at Eloise.”

The whole project is expected to cost $50m, including $35m for underground development and $15m for ventilation, with another $60m required to expand the Eloise processing plant.

That is expected to take place over three years, with costs weighted to FY26 and FY27.

AIC entered a trading halt today to raise $57.2m, in an institutional placement priced at 52c per share. That’s an 11.9% discount to its May 21 price of 59c, with AIC to have ~$83m in the bank once the placement is complete.

Debt funding will likely be used to fund the Eloise plant expansion.

Elsewhere in the market, aluminium prices surged after Rio announced force majeure at its Queensland alumina operations due to gas supply problems.