On Monday, investors urged BHP to drop its pursuit of Anglo American and instead focus on its established growth strategy.
This advice comes after the Australian firm’s recent, last-ditch effort to acquire the London-listed company, which is nearing completion of a merger worth almost $60 billion with Canada’s Teck Resources, according to a Reuters report.
BHP, the world’s largest miner, initially contacted Anglo American’s board to explore a potential deal, according to a Sunday Reuters report.
Focus on expansion
However, by Monday, BHP announced it would not proceed with a bid, opting instead to concentrate on its own expansion.
BHP’s decision to withdraw comes before the scheduled December 9 votes by Teck and Anglo shareholders on the creation of Anglo Teck.
This new entity would be a copper powerhouse with significant development projects in Chile and Peru.
According to investors, who expressed caution regarding acquisitions at the peak of a cycle, BHP’s action suggests a strong effort to bolster its copper supply.
This is particularly important as copper is anticipated to be a key component in the energy transition, following three unsuccessful attempts by BHP to buy out Anglo last year.
Shareholder concerns and M&A caution
Hugh Dive of Atlas Funds Management in Sydney, an owner of BHP shares, was quoted in the report:
I think that many BHP shareholders would be shocked to hear that BHP was still sniffing around Anglo.
Meanwhile, CEO Mike Henry will be preoccupied with managing BHP’s significant growth initiatives, including potash production in Canada and copper expansions across South America.
Acquiring Anglo American would introduce additional complexities for him to resolve.
BHP’s Jansen Potash Project has already faced a delay and cost overrun, as announced in July, with an expected operational date of 2027.
Furthermore, the company is actively pursuing three distinct copper growth opportunities located in Argentina, Chile, and Australia.
According to Jason Teh, chief investment officer at Vertium Asset Management in Sydney, “M&A is never off the table, as long as it adds value, but you have to argue that with existing shareholders there is a fine line to tread.”
The question is whether the other party is going to come to the table. If they are going to fight tooth-and-nail, then the acquirer…risks paying over the odds.
Focus on organic copper and potash growth
Instead of increasing business complexity, the company should focus on refining its operations and cutting costs while expanding its current businesses, according to Stephen Butel, a portfolio manager at Platypus Asset Management, which sold its BHP holdings last year.
BHP has actively focused on copper over the past year. This includes a $2 billion investment, in partnership with Canada’s Lundin for a stake in two Argentinian copper projects.
Additionally, the company has concentrated on maximizing production at its Escondida copper mine in Chile.
Looking ahead, BHP plans to make a decision by mid-2027 regarding a potential investment to double its South Australian output by the middle of the next decade.
Joseph Koh of Blackwattle Investment Partners in Sydney, a firm with holdings in both BHP and Anglo, expressed a measure of “relief” regarding BHP’s apparent commitment to capital discipline.
This sentiment was conveyed despite the fact that no details of the offer have been publicly disclosed.
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