Loaded for Bear: Predator or prey — Has Anglo’s copper move made it a juicier takeover target?

When mining giant BHP launched its unsolicited and ultimately failed bid for Anglo American last year, it had one key target in mind: copper. 

With Anglo’s announcement this week that it was forging a “merger of equals” with Canada’s Teck Resources to form Anglo Teck — which will be a top five global copper producer — the storied company founded over a century ago in Johannesburg may have made itself a juicier takeover target. 

Mind you, it won’t be low-hanging fruit and any potential suitor will need pockets deeper than a Witwatersrand gold shaft. The valuation of the combined companies is more than $50-billion. 

Markets and investors certainly gave the initial news a thumbs up, with Anglo’s share price soaring 9% in the wake of the announcement — a sign of confidence that the merger will deliver the goods. 

And according to Wood Mackenzie, Anglo stocks may well get a hefty re-rating on the upside. 

“... the real upside lies in re-rating. Management expects that increased copper exposure, a streamlined portfolio and strong growth potential will drive a higher valuation multiple. If Anglo Teck positions itself as a pure-play copper growth story, the re-rating could far exceed synergy gains,” it said in a commentary. 

Restructuring

Anglo has been busy restructuring since it rebuffed BHP last year, de-merging its platinum unit — which now trades as Valterra Platinum — and is still in the process of separating from De Beers while completing the disposals of its steelmaking coal and nickel assets. 

“Anglo American has turned from prey to predator. The deal to buy Teck Resources, if it completes, means Anglo has not only pulled itself out of a hole, but also sends a message to mining peers that it is not a pushover,” Russ Mould, the investment director at AJ Bell, told The Guardian.

The all-share deal itself has not been presented as a predatory move, but an amicable “merger of equals” with no premium on the table. And if anyone decides to make a move on Anglo Teck, its future shareholders one suspects would expect a chunky premium.

Read more: Anglo’s next trek is to Canada as it merges with Teck to form top-tier copper producer

For Anglo CEO Duncan Wanblad, the move is clearly a bold one, and it all boils down to one commodity: copper. 

Copper hit record highs in July this year and its future — for producers — looks bright, with looming shortages seen as it is regarded as absolutely critical to the green energy transition, digitisation and the rise of AI, and other industrial applications galore. 

Copper is coveted for its conductivity and role in electrical grid infrastructure, as well as its durability — the stuff lasts. 

Global supply

But the global supply of mined copper, according to the International Energy Agency (IEA), is expected to peak later this decade and then decline at a time of soaring demand — a perfect storm that will rain manna from heaven for producers of the metal. 

Copper production: 1970 to 2024

“The average grade of copper ore has declined by 40% since 1991, while the rate at which new deposits are discovered has stalled. Only 14 of the 239 new copper deposits discovered between 1990 and 2023 were discovered in the past 10 years,” read in a recent report by the CME Group, a US financial services company. 

“The situation is further exacerbated by the fact that copper production has a long lead time, taking an average of 17 years from when new deposits are discovered to the production of the metal.” 

So there is a lot of hype around the commodity, but it is not a “copper craze” — it is grounded firmly in reality. 

Read more: Copper scrap is becoming a ‘strategic material’ as shortages loom — UN

This brings us back to BHP, with its hulking market cap of more than $200-billion and an eye firmly on copper. Many of the world’s big gold producers are also pushing into copper, which is often found alongside gold. 

Wanblad and his team have done a commendable job of reshaping Anglo and positioning it to reap the benefits of this unfolding scramble for copper. And a re-rating of its shares would make Anglo Teck a formidable takeover target. 

But its copper exposure may also be a red rag for mega-predators on the hunt for the red metal. It’s certainly an interesting space to watch. DM