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.
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. For the sake of argument, assume Anglo’s copper earnings can be maintained and the copper price remains stable, it would take about 13 years for the earnings to pay off half of BHP’s current offer price for Anglo.
Of course, this assumes that BHP’s view of Anglo’s assets is that copper is effectively half of the worth of the total company, even though its only 14.5% of underlying EBITDA. Combining their assets would create a dominant metallurgical coal player, so much so that the deal is likely to attract scrutiny from regulators, especially in countries like Japan, which source the vast bulk of their coal from Australia.
Iron ore is BHP’s biggest earner, and the high-grade material produced by Kumba would be useful in the portfolio, but South Africa’s political risk and crumbling infrastructure make it unattractive.
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