This time, it looks like a deal will happen, shifting Anglo American further away from the country in which it was formed 108 years ago. Markets awoke on Tuesday to the deal many suspected was on the boil: Anglo American, which fought off a bruising takeover from BHP 18 months ago, now plans to merge with Canadian mining firm Teck Resources in what it has billed as a “merger of equals”.
Shorn of diamonds, platinum and coal, the plan is to create the world’s fifth-largest copper company worth R875bn ($50bn), with one of the most promising Chilean copper ore bodies at the centre. The merger would combine Anglo’s big copper mine Collahuasi, which it runs in a joint venture with Glencore, with Teck’s Quebrada Blanca, barely 20km away.
The new Anglo Teck, of which Anglo shareholders would own 62.4% and Teck shareholders would own 37.6%, would be headquartered in Vancouver, Canada, while Anglo CEO Duncan Wanblad would lead the combined entity. This would be the second-largest mining deal ever, after Glencore’s $90bn merger with Xstrata in 2013.
In a sense, this is the best Anglo shareholders could have hoped for – a realisation attested to by the 9.5% leap in the share price on the JSE – as the company will retain part of its name and identity, while its larger size will make it almost too big to digest for any rivals.
Nonetheless, it is a pivotal moment in the history of a company founded in Joburg in 1917 by Ernest Oppenheimer, which became the world’s most valuable gold miner at one point, before losing ground as it spun off assets and South Africa’s mining industry began its slide down the production tables.
Wanblad picked his words carefully during the press conference announcing the deal on Tuesday, talking up Anglo’s “long and proud history of contributing to the economic growth of South Africa and supporting the country’s national priorities”, even as its tangible links to the country become more remote.
After the deal, he said Anglo Teck would “continue to uphold and advance” its commitment to ensuring there is “meaningful representation from South Africa on the board and executive team”, as well as investing in “the social fabric of local communities”. The new Anglo Teck would, for instance, continue to comply with BEE and mining licence requirements.
“As part of the effort to support the junior mining sector, Anglo Teck also plans to make financial contributions to South Africa’s Junior Mining Exploration Fund in partnership with the Industrial Development Corporation, and the department of mineral and petroleum resources,” he said.
The deal is still subject to a final vote from shareholders in coming months, but it seems likely to go ahead, not least because Teck’s controlling shareholder Norman Keevil has backed the deal, calling it a “powerful next chapter” for the firm. A number of Anglo shareholders also appeared to give it the thumbs-up.
This suggests that, in the absence of a leftfield bid from an interloper – like BHP, Rio Tinto or a cash-flush gold miner – this deal probably won’t struggle to get across the line.
Peter Major, a veteran mining analyst and director at Modern Corporate Solutions, says this deal underlines the extent to which South Africa has slipped off the global mining agenda. “Anglo American was a mining leviathan of the world by 1980, and in South and Sub-Saharan Africa for 20 more years. But in the early 2000s … it began to pull away from South Africa and the die was cast. There is nothing much left for Anglo there anymore,” he says.
Should this deal be approved, it will mean that an increasingly smaller percentage of the company’s attention and ownership base will be in South Africa. But this is inevitable, say experts.
“South African investors ought to have woken up to the fact that the world is a big place, and you can operate from anywhere. And the truth is, South Africa has become less important over the years for mining,” says Dawid Heyl, a portfolio manager at Ninety One, which owns 1.2% of Anglo American.
Searching for a unicorn
Could this have been different? Well, not with a policy dispensation that has discouraged investment – the new Mineral Resources Development Bill, for instance, requires anyone applying for a prospecting licence to have Black ownership, it restricts some licences to Black investors only, and gives the government the power to veto any change in control for listed mining companies.
The Minerals Council South Africa has already warned it will engage “very, very robustly” on this law.
Says Heyl: “You have got to be honest about the fact that South Africa has not done enough to attract foreign capital into mining ventures and to remain competitive. And if you aren’t doing that, you will see capital move elsewhere.”
This is more so when the opportunities elsewhere – such as that presented by a combined Anglo Teck in Chile – are more compelling.
As Heyl tells it, this sort of opportunity is something of a unicorn in mining circles. “This is the transaction we’ve been talking about, and wishing for, for more than a year. It’s the biggest industrial synergy you could hope to get in mining,” he says.
While the much-lampooned version of corporate takeovers is for CEOs to oversell “synergies”, this is one of those rare deals where the synergies seem tangible.
Essentially, this would allow Anglo American to combine the mining of its Collahuasi in the north of Chile with Teck’s Quebrada Blanca operation about 20km away. Both mine from the same ore body, so this would mean the ore can be processed together. The upshot: 250,000 additional tons of copper could be produced annually which, as Wandblad argued, would open the way for an extra $800m in cost savings.
All of which illustrates, as Heyl says with some understatement, that “the industrial logic for this deal is compelling”.
This would be Wanblad’s “crowning achievement”, says Major, insulating Anglo as best possible from any future takeover bid, while leveraging its exposure to copper, an essential mineral for a low-carbon world calibrated around greater use of renewable energy. Copper, in great demand but facing a supply deficit, is also needed for data centres, underpinning the AI boom.
Wayne McCurrie, an independent analyst, says the deal is a smart one for Anglo. “It provides volume, and does not appear to be a big asking price. After all its recent sales, and potential sales, Anglo needs bulk,” he says.
Nor does McCurrie see this as a negative view on South Africa; rather, it’s more of a positive bias towards copper, which just happens to be located elsewhere.
Nonetheless, it is too early to pop the champagne corks, as there is more than a year to go before the deal is concluded, and anything can happen.
“Will this be the final deal we’ll see in 18 months? I don’t think so,” says one mining executive from a rival company. “This could push someone to look at Anglo again potentially [and] start the firing gun on major sector consolidation.”
Which is possible, even if the odds of another takeover deal for Anglo American have narrowed considerably this week.
Still, this was probably the best hand that Wanblad could have played. What’s clear is that if anyone has a better hand, they had better play it soon.
Top image: Anglo American CEO Duncan Wanblad and Teck Resources CEO Jonathan Price. Pictures: Anglo American and Teck Resources.
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