BHP's Anglo buyout makes business sense if the price is right

BHP Group's proposed takeover of rival miner Anglo American is one of those rare instances where a mega-merger actually makes strong business sense, but it will be difficult to pull off to the satisfaction of all parties.

BHP, the world's largest mining company, offered US$39 billion last week to buy Anglo, a move the London-listed miner that grew out of South Africa rejected as "significantly" undervalued.

The expectation now is that BHP may boost its offer, or other buyers for Anglo, or parts of its diversified portfolio, may emerge.

Much of the media attention has focused on Anglo's copper assets as the lure for BHP, with a combined company becoming the world's largest producer of the industrial metal with a share of around 10%.

In effect, BHP's bid is largely seen as a massive vote of confidence in the future of copper, which is essential to the energy transition given its properties as a conductor and its resistance to corrosion.

The bid may also be a tacit admission on BHP's part that buying copper assets is far easier than trying to find them and develop new mines.

Anglo has interests in three copper mines in Chile and its production in the 2023 financial year was 507,000 metric tons, which resulted in underlying earnings before interest, taxes, depreciation and amortisation (EBITDA) of US$1.452 billion.

BHP's copper business is more diversified, with operations in Chile, Peru, Australia and the United States, and in the 2023 financial year production was 1.717 million tons for an underlying EBITDA of US$6.65 billion.