Company Reports

After five weeks of sparring, no-moat BHP has failed in its pursuit of no-moat Anglo American. BHP confirmed that it does not intend to make a firm offer for Anglo after the latter refused its request to again extend the “put up or shut up” deadline (requires a firm either to declare its intent to make an offer or withdraw for six months) under the UK's takeover and mergers code. This was driven by disagreement over the risks to Anglo shareholders of BHP’s condition under its proposal that Anglo demerge and distribute to shareholders its 78.6% interest in Anglo American Platinum and 69.7% interest in Kumba Iron Ore. As a result, we revert to our unchanged stand-alone fair value estimates of AUD 40.50 and GBX 2,080 per share for BHP and Anglo respectively, from our probability-weighted valuations of AUD 39.50 and GBX 2,300 per share.

BHP is the world’s largest miner by market capitalization. Its main operations span iron ore and copper, with smaller contributions from metallurgical coal, thermal coal, and nickel. The company is also developing its Jansen potash project in Canada. BHP merged its oil and gas assets with Woodside Energy in June 2022, vesting the Woodside shares it received to BHP shareholders, and exiting the sector. It purchased copper miner Oz Minerals in fiscal 2023.

No-moat Anglo has again rejected no-moat BHP’s overtures despite a sweetened all-share proposal via a scheme of arrangement. BHP’s latest proposal has Anglo shareholders receiving 0.8860 BHP shares for each Anglo share held, around 9% higher than the previous proposal and about 25% higher than the original proposal (see our note 'BHP Lobs All-Share Proposal for Anglo American; Shareholders Take No Action'). While again rejecting BHP, Anglo has successfully requested a one-week extension to the deadline under the United Kingdom's takeover and mergers code. BHP will have until May 29, 2024 to either announce a firm intention to make an offer or walk away. The suitor has maintained the other conditions of the proposal, including Anglo American first demerging and distributing its 78.6% shareholding in Anglo American Platinum, or Amplats, its platinum group metals business, and 69.7% shareholding in Kumba Iron Ore to its shareholders.

BHP is the world’s largest miner by market capitalization. Its main operations span iron ore and copper, with smaller contributions from metallurgical coal, thermal coal, and nickel. The company is also developing its Jansen potash project in Canada. BHP merged its oil and gas assets with Woodside Energy in June 2022, vesting the Woodside shares it received to BHP shareholders, and exiting the sector. It purchased copper miner Oz Minerals in fiscal 2023.

In response to no-moat BHP’s overtures, no-moat Anglo American proposes restructuring to focus on its copper and iron ore operations while selling or spinning off its other businesses, including platinum group metals, De Beers, or diamonds, and metallurgical coal. It would also keep the Woodsmith polyhalite project in the United Kingdom. Along with selling its coal business, another major difference to BHP’s proposal is that Anglo will retain its 69.7% stake in Kumba Iron Ore in South Africa. The restructure would essentially cut Anglo’s business in half, with copper and iron ore operations currently accounting for around half of our forecast EBITDA midcycle from 2028.

No-moat BHP has lobbed an increased proposal to buy no-moat Anglo American in an all-share transaction via a scheme of arrangement. Under the updated proposal, Anglo American shareholders would receive 0.8132 BHP shares for each Anglo American share they hold, 15% higher than they would have received under the original proposal that Anglo rejected. (See our note 'BHP Lobs All-Share Proposal for Anglo American; Shareholders Take No Action.') However, Anglo also rejected BHP’s updated proposal. All other conditions of the proposal remain the same, including being conditional on Anglo American first demerging and distributing its 78.6% shareholding in Anglo American Platinum, its platinum group metals business, and 69.7% shareholding in Kumba Iron Ore to its shareholders.

BHP is the world’s largest miner by market capitalization. Its main operations span iron ore and copper, with smaller contributions from metallurgical coal, thermal coal, and nickel. The company is also developing its Jansen potash project in Canada. BHP merged its oil and gas assets with Woodside Energy in June 2022, vesting the Woodside shares it received to BHP shareholders, and exiting the sector. It purchased copper miner Oz Minerals in fiscal 2023.

No-moat BHP proposes to buy no-moat Anglo American in an all-share transaction via a scheme of arrangement. Under the proposal, Anglo American shareholders would receive 0.7097 BHP shares for each Anglo American share they hold. The proposal is conditional on Anglo American first demerging and distributing its 78.6% shareholding in Anglo American Platinum, its platinum group metals, or PGMs, business, and 69.7% shareholding in Kumba Iron Ore to its shareholders. It is also subject to due diligence and other conditions. The proposal is roughly equal to our base-case fair value estimate for Anglo of GBX 2,080 per share and Anglo is reviewing the proposal.

We retain our AUD 40.50 fair value estimate for no-moat BHP with fiscal 2024 third-quarter sales broadly in line with our expectations. Fiscal 2024 production guidance remains within previously announced ranges, except for metallurgical coal, which is again reduced, meaning unit cash costs are likely to be higher than previously guided. However, the changes are immaterial to near-term earnings, and we forecast fiscal 2024 EBITDA of about USD 29.5 billion. Our longer-term forecasts also remain largely intact.

Commodity prices diverged in the quarter. Despite solid China steel production, iron ore and metallurgical coal prices are down, while copper rose on supply issues and hopes of faster global growth. However, prices are elevated compared with history and cost-curve support.

Iron ore prices are lower on concerns over China steel demand due to its struggling property market and weak infrastructure spending. However, gold prices are up on optimism over peak interest rates, driving a 2% rise in our estimate for no-moat Newmont, to USD 51. It remains the cheapest miner we cover, trading 27% below fair value.

BHP is the world’s largest miner by market capitalization. Its main operations span iron ore and copper, with smaller contributions from metallurgical coal, thermal coal, and nickel. The company is also developing its Jansen potash project in Canada. BHP merged its oil and gas assets with Woodside Energy in June 2022, vesting the Woodside shares it received to BHP shareholders, and exiting the sector. It purchased copper miner Oz Minerals in fiscal 2023.

Demand growth from China has been the main driver of rising commodity prices in the past two decades. More recently, though, most commodity prices have fallen from highs set with Russia’s invasion of Ukraine, the subsequent sanctions on Russia, and the rerouting of supply chains. Prices, nevertheless, are generally elevated versus the 20-year average, as well as relative to cost support.

Increased costs for the Samarco dam failure lead to a modest reduction in our fair value estimate for no-moat BHP to AUD 42 per share, down from AUD 43. BHP owns the Samarco iron ore mine in a joint venture with no-moat Vale. While the company reiterated guidance, we raise our forecast fiscal 2024 unit cash costs for its Western Australian Iron Ore operations to USD 19 per metric ton, roughly the top end of guidance. We also now forecast unit cash costs of USD 1.70 per pound at its 57.5%-owned Escondida copper mine in Chile, also at the top end of guidance. We had previously assumed unit cash costs at around the midpoint of guidance for these two businesses, but raise our assumed costs, given inflation headwinds are still prevalent.

BHP is the world’s largest miner by market capitalization. Its main operations span iron ore and copper, with smaller contributions from metallurgical coal, thermal coal, and nickel. The company is also developing its Jansen potash project in Canada. BHP merged its oil and gas assets with Woodside Energy in June 2022, vesting the Woodside shares it received to BHP shareholders, and exiting the sector. It purchased copper miner Oz Minerals in fiscal 2023.

No-moat BHP’s fiscal 2024 second-quarter sales were in line with our expectations. The company also reiterated fiscal 2024 guidance, except metallurgical coal. Fiscal 2024 production will likely be lower and unit cash costs higher than originally guided. We lower our fiscal 2024 EBITDA forecast by 3% to USD 32.7 billion. But our longer-term forecasts remain largely intact, and the near-term decrease is immaterial to our unchanged AUD 43 per share fair value estimate.

Near-term iron ore prices are higher on strong China steel production. Gold prices are up on optimism over peak interest rates, driving a 2% rise in our estimate for no-moat Newmont, to USD 54. It is the cheapest we cover, trading 30% below fair value.

BHP is the world’s largest miner by market capitalization. Its main operations span iron ore and copper, with smaller contributions from metallurgical coal, thermal coal, and nickel. The company is also developing its Jansen potash project in Canada. BHP merged its oil and gas assets with Woodside Energy in June 2022, vesting the Woodside shares it received to BHP shareholders, and exiting the sector. It purchased copper miner Oz Minerals in fiscal 2023.

Commodity prices diverged in the quarter with strong China steel production driving iron ore and metallurgical coal prices up, while base metals prices dropped on worries of a Western recession. Even so, prices are elevated versus history and cost-curve support.

BHP is the world’s largest miner by market capitalization. Its main operations span iron ore and copper, with smaller contributions from metallurgical coal, thermal coal, and nickel. The company is also developing its Jansen potash project in Canada. BHP merged its oil and gas assets with Woodside Energy in June 2022, vesting the Woodside shares it received to BHP shareholders, and exiting the sector. It purchased copper miner Oz Minerals in fiscal 2023.