This opinion was written by Eric Reguly and was published in the Globe & Mail on April 27, 2024.
Australia’s BHP, the world’s biggest mining company, considered a bid for smaller player Anglo American about five years ago. BHP coveted only Anglo’s copper, and was put off by the prospect of dismantling a highly complex company to nail the prize. So it passed.
Big mistake. Copper since then has become the new oil, and no big mining house can prosper without the metal considered critical to the transition to a low-carbon future. Everyone wants copper and the price is soaring as supply proves incapable of meeting demand.
This week, BHP attempted to rectify its mistake. A leak forced it to unveil its proposal, valued at US$39-billion, to use its shares as the currency to buy Anglo, chiefly to get at its thriving copper mines in Chile and Peru.
Most of Anglo’s other operations, notably the South African platinum and iron ore businesses, would get shunted out the door by way of demerger. On Friday, Anglo summarily rejected the offer, saying it “significantly undervalues” the company.
End of story? No – it is just getting started.
BHP expected Anglo’s reaction and will almost certainly come back with a higher offer. Rival bids could well emerge from either big-name mining houses such as Rio Tinto or Glencore; Chinese or Japanese consortiums whose individual members would cherry-pick the assets they want; or even activist investors bent on dismantling the company in the belief that the parts are worth more than the whole. On Friday, Bloomberg reported that U.S. hedge fund Elliott Investment Management had, in recent months, amassed a US$1-billion stake in Anglo. (Elliott, led by Paul Singer, was one of the investors that pushed BHP to spin off its oil assets in 2017.)
One way or another, it appears that Anglo, which was founded in 1917 by the German diamond- and gold-mining magnate Ernest Oppenheimer, with the help of American financier J.P. Morgan, is a goner. Its death will be akin to organ harvesting: The copper will be extracted from the corpse, the rest discarded by way of sale.
Until about 20 years ago, copper was just another commodity. From the 1970s to until 2005, the price per pound typically ranged from US$1 to US$1.50. Today, it’s US$4.60 and, based on relentless demand and the dearth of mine openings, the price could climb by 50 per cent over the next few years, according to various analysts’ reports.
The reason? Decarbonization cannot happen without copper. It is considered the miracle metal for a low-carbon future. Copper is a superb conductor of electricity, is ductile (meaning it can be rolled up or pulled into wires without breaking), conducts heat well and does not corrode like steel.
As such, it is an essential material to propel electrification. Electric vehicles (EVs), powered by what are essentially fat sewing-machine motors, require more than five times as much copper than a regular car. EV charging stations, wind turbines, solar panels and batteries of every description need big amounts of copper. Overhauling old electricity grids and building new ones are perhaps the greatest uses of the metal today. Artificial-intelligence data centres are another voracious consumer.
Demand for copper is about 26 million tonnes a year (of which Anglo and Rio together would produce about 1.9-million tonnes). Trafigura, a Swiss commodities trader, said this week that demand could rise by 10 million tonnes by 2035.
The problem is that copper mines are notoriously expensive to build – development costs have climbed by half in recent years, industry executives say – since most of the new ones have low-grade ores, meaning perhaps twice as much rock has to be dug out to produce the same quantity of copper as older, richer mines. A big copper mine can take a decade to develop, and some new ones require desalinization plants, whose construction costs can exceed US$1-billion. The upshot is that buying existing copper mines, or companies that own them, is often seen as the fastest, cheapest route to boosting production.
BHP is well aware that buying is easier than building, and it stands a fair chance of landing Anglo if it offers a better price, perhaps one with a cash component. The company, led by Canadian Mike Henry, is obviously gambling that its big-name competitors lack the courage, or the money, to launch rival bids.
He may be right. Glencore, typically a voracious, opportunistic buyer, has just paid almost US$8-billion for the metallurgical coal assets of Vancouver’s Teck Resources. It may not have the financial power to fund a purchase that could cost five times as much. And since Glencore is now loaded with non-climate-friendly coal, Anglo shareholders might resist taking Glencore shares as payment.
Rio Tinto is certainly a potential candidate for Anglo, though its boss, Jakob Stausholm, seems to be taking a conservative approach to expanding the company and may be in no mood for a potentially costly and nasty bidding war. Vale, the Brazilian iron ore giant that took over Canada’s Inco mining company in 2006, may not have the bandwidth to take on a blockbuster acquisition since it is dealing with a series of environmental problems and other issues.
Still, copper has emerged as the building block of a cleaner future and prices will almost certainly remain high for some time. Anglo may disappoint Mr. Henry by not going gently into the night. A bruising fight for its copper mines seems just as likely as capitulation.
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