Analysis – BHP’s proposed Anglo American bid is a big bet on copper By Reuters

Written by: Siyi Liu, Mai Nguyen

BEIJING/HANOI (Reuters) – BHP Group (NYSE:)’s proposed $39 billion acquisition of Anglo American (JO:) is a big bet that strong demand prospects and tight mineral supplies could spark a scramble for mining assets. . A decisive factor in the energy transition is pushing prices to their highest levels in years.

Together, the two companies will produce 10% of global production of the red metal, cementing diversified miner BHP’s position as the top producer ahead of copper-focused Codelco and Freeport-McMoRan (NYSE:).

Thanks to its high conductivity and extreme corrosion resistance, the metal is used in everything from automobiles and power grids to construction.

“The energy transition has only just begun. If electricity is the lifeblood of this revolution, then copper is its veins and arteries,” said Peter Arkell, president of the Global Mining Association of China (GMAC).

“The major mining companies are recognizing that copper must become a fundamental part of their portfolios as there is no way existing mines can meet expected demand,” he told Reuters.

Global refined copper consumption rose 6.7% to 27.63 million tonnes in 2023, according to data from the World Bureau of Metal Statistics.

Global demand for refined copper will grow at a compound annual growth rate of 2.3% between now and 2028, according to London-based commodity research firm CRU.

This robust demand outlook is coupled with an unexpected supply shortage of copper concentrate this year following the closure of First Quantum Minerals’ (OTC:) massive Cobre Panama mine in December.

Also in December, Anglo American cut its copper production guidance for its Los Bronces mine in Chile by up to 210,000 tonnes in 2024 and by up to 180,000 tonnes in 2025, citing low grades and ore hardness, while analysts predicted the market would balance out. urged to correct it.

CRU expects the global copper concentrate shortfall to reach 194,000 tonnes and the refined copper shortfall to 149,000 tonnes this year, and analysts say they expect the concentrate deficit to widen over the next three years.

Goldman Sachs is more optimistic. Analysts at the investment bank predicted a shortage of 428,000 tonnes of refined copper in 2024, with prices expected to reach $12,000 per tonne next year, analysts at the investment bank predicted in a note Thursday.

This represents a 23% increase from current levels on the London Metal Exchange (LME), where strong long-term market fundamentals and speculative trading have driven prices higher.

The LME’s benchmark three-month copper contract hit a two-year high of $9,988 a tonne on Monday, up 15% so far this year, while the most traded contract on the Shanghai Futures Exchange hit 81,050 yuan ($11,184.25) for the year. tons on Monday, up 18% year-on-year.

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Craig Lang, an analyst at CRU, said some miners were struggling to maintain production as their mines aged, which would force them to free up other assets. The smelter is also likely to buy a stake in the mine to secure the purchase, he added.

BHP said in a statement on Thursday that acquiring Anglo would provide it with value-added copper growth options.

“BHP has been talking about securing more copper for a long time,” said Hayden Bairstow, head of research at Australian broker Argonaut. “Anglo plans to produce 1 million tonnes per year within the next 10 years.”

Miners and smelters in China, the world’s leading producer of refined copper and largest importer of the raw material, are also looking to mining assets to secure supplies.

China’s Zijin Mining, ranked sixth in the world with copper mines of more than 1 million tons in 2023, tried to purchase Zambia’s Mopani copper mine with South Africa’s Sibaniye Stillwater (NYSE:) last year, but lost out to one unit. International Holdings Company, United Arab Emirates.

China’s CMOC Group said in February it could buy more assets in the copper- and cobalt-rich Democratic Republic of Congo and sees more growth potential in South America and Indonesia.

China Copper, owned by state-owned China Aluminum Corporation (Chalco), said in March it was exploring partnerships globally to acquire assets.

GMAC’s Arkell said the long-term planning and investment required for mining means producers must both explore and purchase.

“As major mining companies look for the next important deposits, they will need to look at acquisitions to remain a major producer to meet near-term demand,” he said.

($1 = 7.2468 yuan)