- Australian miner launches deal worth proposed $38.8 billion
- Anglo has huge copper assets crucial to buyout
- Copper prices at two-year highs as renewable energy demand rises
FTSE 100 mining group Anglo American (AAL) has huge iron ore, platinum, coal and, through its’ controlling stake in dealer De Beers, diamonds, but make no mistake, BHP’s (BHP) interest in the business is a big bet on copper.
Copper is crucial to the world’s renewables energy shift, acting as the blood and veins of a future electrically powered world, and demand is rising. London-based commodity research firm CRU estimates global refined copper demand will rise at a compound annual growth rate of 2.3% from now through 2028.
Occasional supply bottlenecks will only give greater leverage to rising copper prices, fuelled by the December closure of First Quantum Minerals’ (TE:TSE) massive Cobre Panama mine. That same month, Anglo American cut its copper production guidance by up to 210,000 tons for 2024 and as much as 180,000 tons for 2025, citing lower grades and ore hardness at the Los Bronces mine in Chile, pushing analysts to revise forecasts.
COPPER AT TWO-YEAR HIGHS
On Monday (22 Apr), prices for the London Metals Exchange’s benchmark three-month copper contract hit two-year highs of $9,988 per metric ton, up 15% so far this year. Prices are even higher in China, at 81,050 yuan ($11,184.25) a ton on Monday on the most traded contracts on the Shanghai Futures Exchange, up 18% year-to-date.
Goldman Sachs is even more bullish on copper, with the investment bank’s analysts forecasting a shortage of 428,000 tons of refined copper and also predicted prices would hit $12,000 per ton over the coming year.
RIGHT KIND OF ASSETS
This forms the foundation of BHP’s $38.8 billion, £25.08 per share bid for Anglo American. ‘Anglo has the right kind of assets to keep BHP generating big bucks for decades into the future’, says AJ Bell’s Daniel Coatsworth, who has been writing about the mining sector for years.
The proposed 31% premium deal that would create the world’s biggest copper miner and, in an industry where scale matters, sent its smaller rival’s shares sharply higher as investors speculate on other buyout targets.
‘Anglo American was a sitting duck after the sharp decline in its share price last year’, believes Coatsworth. The firm saw its market value shrink by 39% in 2023 due to operational setbacks, weaker commodity prices and downgraded production guidance.
There’s some talk that South African and Chinese influences could try to scupper the deal, where the former’s pension funds are big Anglo American shareholders, but nothing concrete. Time will tell.
Anglo American shares rose more than 12.5% on Thursday to £24.825.
Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (Steven Frazer) and the editor of the article (Martin Gamble) own shares in AJ Bell.
