BHP’s $60 billion bid for Anglo looks like it’s all about copper
But it could also make BHP a dominant producer of premium hard coking coal
Why does the marriage of the Bowen Basin cousins make sense?
BHP’s (ASX:BHP) proposed acquisition of Anglo American took little over a day to be rejected.
Pitched at a ratio of 0.7097 BHP shares for every Anglo share on issue, plus the distribution of shares in the Anglo businesses BHP doesn’t want — South African-based Kumba Iron Ore and AmPlats — the $60 billion deal was summarily dismissed as unattractive by Anglo chairman Stuart Chambers.
Will BHP go back to the well? It has form. Reports indicate it is preparing a second bid amid what is expected to be strong opposition from other mining giants like Glencore, Vale, Vedanta and Rio Tinto, though there could be a stumbling block for the latter two.
BHP clearly wants the copper assets in the Anglo American stable, which include Peru’s Quellaveco — one of the largest new copper mines developed in recent times — and a 44% stake in Chile’s Collahuasi — among the cheapest copper mines globally and slated to be the second 1Mtpa producer after BHP’s Escondida from the early 2030s.
In 2022, BHP played the long game with OZ Minerals, sitting tight after an initial offer was rejected before returning with an agreed $9.6b bid after a few months on the sidelines.
But copper isn’t the only thing BHP will pick up in the deal.
As many analysts have noted, its proposed acquisition would deliver the high grade 24Mtpa Minas Rio iron ore mine in Brazil as well as Anglo’s 16Mtpa steelmaking coal portfolio in Queensland.
Very curious indeed
BHP’s attempt to plunder Anglo is curious in a sense since it departs from the world’s biggest miner’s attempts to shrink its exposure to fossil fuels.
Having merged its oil and gas business with Woodside, BHP also hived off its 80% stake in the Poitrel and South Walker Creek mines in Queensland to Stanmore (ASX:SMR) as well as its half-owned Daunia and Blackwater mines to Whitehaven Coal (ASX:WHC).
Splitting those four mines from the company’s portfolio will see its coal capacity shrink by around 27Mtpa on a 100% basis.
The Mt Arthur thermal coal mine in NSW, around 15Mtpa, is due to be wound down by 2030 after BHP failed to find a suitable buyer.
But BHP has a high conviction that blast furnace steelmaking, which uses met coal to reduce iron ore to pig iron, will remain the dominant form of steel production for decades to come.
And iron ore miners are convinced growing urbanisation and the steel intensity of the energy transition will see the commodity stay in high demand, even as China’s real estate market falters and population stagnates.
BHP has stated a preference for higher quality premium hard coking coal, though it has also refused to assign capex to its Queensland operations in protest at a progressive State royalty regime introduced during 2022’s coal boom that raised billions for the State budget.
Complaining it is paying a 62% effective tax rate, one can only wonder what the Queensland Government is making of BHP’s attempt to acquire more Bowen Basin coal mines as it shouts down the policy.
Regardless, Wood Mackenzie head of Corporate, Metals and Mining James Whiteside said in a webinar the deal was the only one BHP could have done to access the kind of coal resources it has prioritised.
“One of the aspects which hasn’t been talked about that much but I think was writ large in the announcement by BHP of the bid was the strategic importance of the met coal assets,” he said.
“And I actually believe this is probably one of the only met coal acquisitions that BHP could have done to gain access to these high quality resources they were after.
“You talk about underinvestment in the copper sector, wait till you look at the met coal market. And what do they get here?
“They get this focus on the Bowen Basin which very much overlaps with the footprint of their operations, large, low cost high quality coking coal assets.
“(There are) potential savings in logistics and general operations, transport network shared, marketing synergies for the revenue upside.
“It hasn’t been plain sailing in Queensland in recent years. BHP did … strip out their capex guidance altogether for the Queensland operations when they brought in those high, progressive royalty rates.
“Would BHP invest in growing capacity there? Perhaps not. This gives them the expansion today in the very high grade, high quality coking coal they’ve been focusing their portfolio rationalisation on.”
ASX coal stocks
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CODE COMPANY PRICE WEEK RETURN % MONTH RETURN % 6 MONTH RETURN% YEAR RETURN % MARKET CAP NAE New Age Exploration 0.0035 -13% -13% -36% -30% $ 7,175,595.64 CKA Cokal Ltd 0.105 -5% -5% 5% -28% $ 113,289,642.90 BCB Bowen Coal Limited 0.056 14% 19% -48% -77% $ 139,356,269.40 SVG Savannah Goldfields 0.028 -7% 4% -50% -83% $ 7,870,377.65 GRX Greenx Metals Ltd 0.885 -2% -4% -6% 15% $ 228,113,004.55 AKM Aspire Mining Ltd 0.205 8% -2% 166% 247% $ 98,989,212.08 AVM Advance Metals Ltd 0.026 0% -32% -57% -86% $ 1,094,344.73 YAL Yancoal Aust Ltd 5.55 -3% 6% 11% 0% $ 7,249,212,509.13 NHC New Hope Corporation 4.55 -2% -2% -25% -14% $ 3,837,823,006.56 TIG Tigers Realm Coal 0.0045 13% -10% -10% -25% $ 52,266,809.47 SMR Stanmore Resources 3.34 3% 4% -17% 10% $ 2,947,550,643.18 WHC Whitehaven Coal 7.72 -1% 9% 0% 7% $ 6,416,728,013.28 BRL Bathurst Res Ltd. 0.84 -2% -3% -14% -18% $ 168,396,606.40 CRN Coronado Global Res 1.245 4% 0% -29% -25% $ 2,036,891,281.95 JAL Jameson Resources 0.031 15% 41% -24% -56% $ 13,507,732.98 TER Terracom Ltd 0.245 -4% 2% -42% -62% $ 216,260,883.45 ATU Atrum Coal Ltd 0.004526 0% 0% 0% 0% $ 11,966,853.96 MCM Mc Mining Ltd 0.16 0% -3% 23% -22% $ 65,262,519.04 DBI Dalrymple Bay 2.79 1% 2% 2% 9% $ 1,363,344,584.25 AQC Auspaccoal Ltd 0.088 10% 17% -41% -43% $ 45,141,148.01
Higher and higher
The coal assets are a potential stumbling block to a rival bid from Rio or Vale, both of which have sold their steelmaking coal divisions in recent years.
One possibility of course is that BHP could spin out an enlarged met coal portfolio, though rival Glencore has faced opposition from investors against its plan to demerge coal from its base metals and trading arms.
It offered US$6.9b for a 77% stake in Teck Resources’ Elk Valley Resources met coal business in British Columbia, having previously failed with a takeover bid that would have also netted Glencore and boss Gary Nagle TSX-listed Teck’s sought after copper and zinc assets.
For BHP there are other non-copper advantages to the deal.
Notably, it provides a high grade iron ore asset in Minas Rio that is of similar size to Rio Tinto’s stake in the undeveloped Simandou, with growth potential via a deal to develop surrounding tenements held by Vale.
“In Minas Rio they get access to this new joint venture with Vale … and in that the high grade options they were after,” Whiteside said.
“They previously said they were satisfied with the higher grade options in Western Australian Iron Ore and Samarco but obviously this gives them more options there.”
Speaking of Samarco, amid the Anglo American bid hubbub BHP and Vale have quietly been revealed to have put a US$25.7 billion ($127 billion Brazilian Real) offer on the table with the Brazilian, Minas Gerais and Espirito Santo Governments to settle legal action over a tailings dam disaster that killed 19 people at the JV.
BHP claims US$7.7b has already been invested on remediation and compensation to date, with a further US$3.6b of obligations to be performed by Samarco and its Renova Foundation.
A US$14.4b cash payment, the largest chunk of the settlement, would be paid over a period stretching more than a decade.
The Samarco or Mariana Dam Disaster occurred in November 2015. A little over three years later, in January 2019, 270 people were killed in a dam disaster at the Córrego do Feijão mine near Brumadinho, a project owned by Vale.
Class action lawsuits have also been brought in England against BHP and the Netherlands against Vale and Samarco.
Bulk price movements
Iron ore prices headed for a strong finish to April, with Singapore futures closing the month at around US$117/t yesterday.
Coking coal futures were down 0.7% on Monday to US$265.30/t after a rebound from lows earlier in the month as the steel complex stuttered.
China’s steel industry PMI lifted last month according to data from the Middle Kingdom, though it remained in contractionary territory.
#China‘s #Steel Industry PMI recovered to 47.9% in April.
The New Order Subindex rose by 3 pps to 47.4%, still in <45 contraction.
The Production Subindex dropped by 12 pps to 49.7%.
The real estate industry’s demand for the building materials will be weakened amid summer… https://t.co/4saDaQ6DO5 pic.twitter.com/h1EBEWkLeD
— CN Wire (@Sino_Market) April 30, 2024
Front month Newcastle thermal coal futures were up slightly yesterday to US$137.40/t.
ASX iron ore stocks
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CODE COMPANY PRICE WEEK RETURN % MONTH RETURN % 6 MONTH RETURN% YEAR RETURN % MARKET CAP ACS Accent Resources NL 0.007 0% 0% -13% 0% $ 3,311,890.98 ADY Admiralty Resources. 0.007 17% 17% 17% 17% $ 11,406,317.58 AKO Akora Resources 0.15 -5% -11% -5% -18% $ 15,048,421.95 BCK Brockman Mining Ltd 0.024 -4% 0% -17% -27% $ 241,286,035.41 BHP BHP Group Limited 43.03 -5% -3% -5% -3% $ 217,923,679,206.49 CIA Champion Iron Ltd 7.16 6% -3% 3% 11% $ 3,719,751,402.68 CZR CZR Resources Ltd 0.28 4% 2% 81% 65% $ 61,291,007.96 DRE Dreadnought Resources Ltd 0.017 6% 0% -45% -73% $ 63,235,313.28 EFE Eastern Resources 0.007 -13% 0% -13% -36% $ 8,693,625.23 CUF Cufe Ltd 0.014 8% 8% 17% -13% $ 16,045,573.11 FEX Fenix Resources Ltd 0.28 0% 6% 19% 17% $ 197,966,107.20 FMG Fortescue Ltd 26.05 5% 1% 17% 24% $ 79,037,029,445.06 RHK Red Hawk Mining Ltd 0.7 4% -1% 17% 71% $ 147,860,494.46 GEN Genmin 0.105 19% -34% -34% -26% $ 67,837,714.16 GRR Grange Resources. 0.42 -2% -5% -3% -32% $ 474,508,866.18 GWR GWR Group Ltd 0.11 5% 5% 49% 36% $ 35,333,832.05 HAV Havilah Resources 0.23 21% 35% 0% -12% $ 72,827,018.30 HAW Hawthorn Resources 0.075 14% 7% -21% -12% $ 26,466,233.43 HIO Hawsons Iron Ltd 0.035 -8% 3% -38% -31% $ 36,762,842.36 IRD Iron Road Ltd 0.078 -3% 22% 11% -29% $ 66,752,358.71 JNO Juno 0.062 -3% -7% -24% -30% $ 11,280,606.12 LCY Legacy Iron Ore 0.017 6% 13% 0% 6% $ 131,130,320.45 MAG Magmatic Resrce Ltd 0.1 -20% 10% 59% -20% $ 41,980,284.39 MDX Mindax Limited 0.034 -6% -13% -33% -83% $ 69,548,998.52 MGT Magnetite Mines 0.27 -2% 4% -14% -50% $ 27,069,494.38 MGU Magnum Mining & Exp 0.015 15% -12% -38% -21% $ 11,331,059.64 MGX Mount Gibson Iron 0.445 -2% 3% -11% -6% $ 552,772,098.52 MIN Mineral Resources. 72.19 5% 2% 20% -2% $ 13,939,787,316.70 MIO Macarthur Minerals 0.075 -6% -17% -52% -54% $ 12,904,581.60 PFE Panteraminerals 0.039 3% -26% -39% -54% $ 10,458,496.62 PLG Pearlgullironlimited 0.026 -4% -13% 0% -13% $ 5,318,086.54 RHI Red Hill Minerals 6.49 0% 15% 54% 41% $ 399,396,062.50 RIO Rio Tinto Limited 130.49 1% 7% 11% 16% $ 48,621,899,709.72 RLC Reedy Lagoon Corp. 0.004 0% 0% 0% -41% $ 2,478,162.93 CTN Catalina Resources 0.003 0% -40% -25% -25% $ 3,715,460.68 SRK Strike Resources 0.044 0% -2% -14% -19% $ 12,485,000.00 SRN Surefire Rescs NL 0.01 0% 5% -33% -41% $ 21,849,385.94 TI1 Tombador Iron 0.014 0% 0% 0% -44% $ 30,218,753.22 TLM Talisman Mining 0.265 6% 8% 89% 83% $ 55,554,502.96 VMS Venture Minerals 0.02 -9% -9% 100% 5% $ 45,333,594.04 EQN Equinoxresources 0.215 0% -2% 19% 65% $ 21,752,625.65 AMD Arrow Minerals 0.005 0% 0% 150% 11% $ 37,918,825.48 CTM Centaurus Metals Ltd 0.415 0% 38% -14% -52% $ 207,898,881.54
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