BHP\u2019s $60 billion bid for Anglo looks like it\u2019s all about copper
\nBut it could also make BHP a dominant producer of premium hard coking coal
\nWhy does the marriage of the Bowen Basin cousins make sense?<\/p>\n
BHP\u2019s (ASX:BHP)<\/a> proposed acquisition of Anglo American took little over a day to be rejected.<\/p>\n 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\u2019t want \u2014 South African-based Kumba Iron Ore and AmPlats \u2014 the $60 billion deal was summarily dismissed as unattractive by Anglo chairman Stuart Chambers.<\/p>\n 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,<\/a> though there could be a stumbling block for the latter two.<\/p>\n BHP clearly wants the copper assets in the Anglo American stable, which include Peru\u2019s Quellaveco \u2014 one of the largest new copper mines developed in recent times \u2014 and a 44% stake in Chile\u2019s Collahuasi \u2014 among the cheapest copper mines globally and slated to be the second 1Mtpa producer after BHP\u2019s Escondida from the early 2030s.<\/p>\n 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.<\/p>\n But copper isn\u2019t the only thing BHP will pick up in the deal.<\/p>\n 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\u2019s 16Mtpa steelmaking coal portfolio in Queensland.<\/p>\n \u00a0<\/p>\n BHP\u2019s attempt to plunder Anglo is curious in a sense since it departs from the world\u2019s biggest miner\u2019s attempts to shrink its exposure to fossil fuels.<\/p>\n 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)<\/a> as well as its half-owned Daunia and Blackwater mines to Whitehaven Coal (ASX:WHC)<\/a>.<\/p>\n Splitting those four mines from the company\u2019s portfolio will see its coal capacity shrink by around 27Mtpa on a 100% basis.<\/p>\n 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.<\/p>\n 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.<\/p>\n 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\u2019s real estate market falters and population stagnates.<\/p>\n 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\u2019s coal boom that raised billions for the State budget.<\/p>\n Complaining it is paying a 62% effective tax rate, one can only wonder what the Queensland Government is making of BHP\u2019s attempt to acquire more Bowen Basin coal mines as it shouts down the policy.<\/p>\n 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.<\/p>\n \u201cOne of the aspects which hasn\u2019t 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,\u201d he said.<\/p>\n \u201cAnd 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.<\/p>\n \u201cYou talk about underinvestment in the copper sector, wait till you look at the met coal market. And what do they get here? <\/p>\n \u201cThey 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.<\/p>\n \u201c(There are) potential savings in logistics and general operations, transport network shared, marketing synergies for the revenue upside.<\/p>\n \u201cIt hasn\u2019t been plain sailing in Queensland in recent years. BHP did \u2026 strip out their capex guidance altogether for the Queensland operations when they brought in those high, progressive royalty rates.<\/p>\n \u201cWould BHP invest in growing capacity there? Perhaps not. This gives them the expansion today in the very high grade, high quality coking coal they\u2019ve been focusing their portfolio rationalisation on.\u201d<\/p>\n \u00a0<\/p>\n Scroll or swipe to reveal table. Click headings to sort.<\/em>\n<\/p>\n 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 <\/p>\n WordPress Table Plugin<\/a><\/p>\n \u00a0<\/p>\n 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.<\/p>\n 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.<\/p>\n It offered US$6.9b for a 77% stake in Teck Resources\u2019 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\u2019s sought after copper and zinc assets.<\/p>\n For BHP there are other non-copper advantages to the deal.<\/p>\n Notably, it provides a high grade iron ore asset in Minas Rio that is of similar size to Rio Tinto\u2019s stake in the undeveloped Simandou, with growth potential via a deal to develop surrounding tenements held by Vale.<\/p>\n \u201cIn Minas Rio they get access to this new joint venture with Vale \u2026 and in that the high grade options they were after,\u201d Whiteside said.<\/p>\n \u201cThey 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.\u201d<\/p>\n 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.<\/p>\n 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.<\/p>\n A US$14.4b cash payment, the largest chunk of the settlement, would be paid over a period stretching more than a decade.<\/p>\n 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 C\u00f3rrego do Feij\u00e3o mine near Brumadinho, a project owned by Vale.<\/p>\n Class action lawsuits have also been brought in England against BHP and the Netherlands against Vale and Samarco.<\/p>\n \u00a0<\/p>\n Iron ore prices headed for a strong finish to April, with Singapore futures closing the month at around US$117\/t yesterday.<\/p>\n 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.<\/p>\n China\u2019s steel industry PMI lifted last month according to data from the Middle Kingdom, though it remained in contractionary territory.<\/p>\n #China<\/a>‘s #Steel<\/a> Industry PMI recovered to 47.9% in April.Very curious indeed<\/h2>\n
ASX coal stocks<\/h2>\n
Higher and higher<\/h2>\n
Bulk price movements<\/h2>\n
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\u2026 https:\/\/t.co\/4saDaQ6DO5<\/a> pic.twitter.com\/h1EBEWkLeD<\/a><\/p>\n