Failed BHP takeover sparks mining sector rally

Company News

by Glenn Dyer

BHP's (ASX:BHP) unsuccessful takeover attempt of Anglo American has invigorated the mining industry, boosting share prices and highlighting the sector's critical role in decarbonizing the global economy. Now, the challenge for executives is to convert this attention into the financial support needed to produce the metals required for renewable energy infrastructure.

BHP chief executive Mike Henry argued that a merger would "grow the pie of value for both sets of shareholders." However, combining the two businesses alone wouldn't increase the metal supply needed for future clean energy infrastructure. The shortage of copper, essential for electrification, is particularly acute, with demand expected to almost double to 50 million tonnes per year by 2035, according to S&P Global Commodity Insights. Few new mines are under development, and acquiring Anglo's copper projects in Chile and Peru would have solidified BHP's position as the top copper producer, responsible for about 10% of global supply. However, being bigger doesn't necessarily mean more likely to build new mines.

Finding and developing mineral deposits is time-consuming and costly. For example, Ivanhoe Mines, which runs the Kamoa-Kakula copper mine in the Democratic Republic of Congo, staked the ground in the 1990s and began production only in 2021. For at least a decade, shareholders have preferred companies to focus on boosting returns from existing assets rather than pursuing new projects in challenging environments. BHP stopped pursuing projects in the Congo around 2012. Cost overruns, environmental missteps, and poor shareholder returns have all contributed to declining capital expenditure budgets.

Investors have also left the sector, with commodities now representing about 2% of total assets under management, down from almost 9% in 2009, according to Pala Investments. The energy transition offers mining executives a chance to change the sector's public narrative, from being seen as polluting and destructive to being part of the solution. "You will simply not be able to build a new-energy system and reduce the world’s CO emissions without getting sufficient access to a number of minerals," Jakob Stausholm, chief executive of Rio Tinto, told the Financial Times last year.

Despite more stakeholders acknowledging mining's role in reducing carbon emissions, investor capital has yet to follow at necessary levels. "The mining sector as a whole needs a completely different level of recognition for the role it plays in the global economy," said Adam Matthews, chief responsible investment officer at the Church of England Pensions Board. The Church of England, a small shareholder in both BHP and Anglo, opposed the takeover, believing it would shrink the sector and future metal supply. "We believe a strongly backed Anglo is better for the mining sector in general and for the global transition," Matthews wrote after talks ended.

Matthews also chairs the Global Investor Commission on Mining 2030, a multi-stakeholder initiative backed by 82 financial institutions, aiming to attract long-term capital to the sector by improving social and environmental standards. "We need to recognize that investors are not properly valuing this sector and in particular those companies developing the most socially responsible approaches," he said.

Western governments, which had largely ignored the mining industry for years, are beginning to see the importance of developing and maintaining secure supplies of metals and minerals. The US, UK, and EU have all launched or updated their critical minerals strategies to provide more support to the sector. If BHP's failed takeover prompts more investors to do the same, some good may come from its attempt.

Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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