BHP’s biggest rivals sit on the sidelines of Anglo M&A drama

The situation remains fluid and could change at any time, according to people familiar with discussions ongoing in the industry, who asked not to be identified.

A representative for Rio Tinto declined to comment, while a Glencore spokesperson said the company doesn’t comment on market rumors and speculation.

BHP’s proposal to partially break up and then acquire Anglo has sent an electric charge through the industry as other large producers assess whether they should make a rival bid, while bankers are furiously pitching deals. The mining industry has a history of frenzied periods of M&A marked by bidding wars, hostile takeovers and a fear of missing out. All the big miners at the moment are keen to expand in copper — the primary driver for BHP’s Anglo bid.

However, any deal for Anglo is likely to be complex because of the company’s structure and unique mix of commodities, and rivals will be wary of taking on heavyweight BHP. The industry must also contend with its recent past: Rio Tinto in particular has spent much of the last decade seeking to placate investors following a series of disastrous deals and other missteps.

Anglo has rejected the initial proposal and Bloomberg reported last week that BHP was considering an improved offer.

Rio and Glencore are viewed by many analysts as the most likely interlopers for Anglo. Rio in particular is the only producer with a balance sheet and cash flow comparable to the industry leader. Like BHP, the world’s second-largest miner faces a structural challenge of having too much iron ore in its portfolio and not enough copper. Glencore, meanwhile, is one of the sector’s most aggressive dealmakers.

However, while Rio’s executives have discussed the Anglo situation on multiple occasions and held discussions with its banks, the company doesn’t feel any pressure to make an offer at the moment, people familiar with the situation said. They cautioned that no firm decision has been made, and the situation could change at any time.

Rio sees many of the same obstacles that BHP has faced, the people said. While Anglo’s copper mines are attractive, many of its other businesses are either underperforming or would be a poor fit in its portfolio. BHP’s solution was to propose that Anglo first spin off its holdings in two listed South African companies before it proceeds with a takeover — a plan that Anglo has rejected as “highly unattractive” for its shareholders.

However, Rio will be watching closely to see if BHP’s approach succeeds in shaking Anglo’s copper assets free from the rest of its operations, or forces Anglo to restructure in a way that makes its copper business a simpler target, the people said. Rio has long admired Anglo’s giant Collahuasi copper mine in Chile, for example, and Bloomberg has reported previously that it made offers to both Anglo and co-owner Glencore for their stakes in the mine during the 2015 commodity slump.

Glencore, which has been one of the industry’s most active dealmakers, is also focused on whether specific Anglo assets would come up for sale as a result of the takeover drama.

BHP has said it would put some of Anglo’s operations under review if it succeeded in a takeover, and it could also be forced to divest mines to secure antitrust approvals. Anglo itself was also already conducting a review of its business as part of a turnaround plan before the BHP interest became public.

In addition to Anglo’s copper assets, Glencore could be interested in buying the company’s South African iron ore unit or Australian steelmaking coal operations, some of the people said.

Glencore last year made an ultimately unsuccessful bid to buy Teck Resources Ltd., before eventually agreeing to acquire the Canadian firm’s coal unit instead. That deal is expected to close in the coming months.

The biggest miners are constantly evaluating their rivals, but that process has accelerated after BHP’s approach became public. Investment bankers that haven’t already been hired by Anglo or BHP to advise on the deal are actively pitching potential deals to other large miners including Freeport-McMoRan Inc. and Vale SA, as well as Japanese trading houses and Middle East state-backed investors.

And while BHP’s biggest rivals aren’t rushing in, there is a clear acknowledgment about what a successful takeover of Anglo would mean. BHP, already the biggest miner, would dwarf all its peers in size, while the addition of Anglo’s copper to its own copper mines and hugely profitable iron ore assets would give it one of the most attractive commodity portfolios.

Executives and advisors are also considering the implications for dealmaking elsewhere in the industry. If the biggest player with the deepest pockets spends months or years focused on Anglo, it could leave rivals with a clearer route to other potential targets such as First Quantum Minerals Ltd. and Teck.

Rio has looked in the past at copper miner First Quantum, among other potential deals, but chief executive officer Jakob Stausholm has so far rejected the idea.

However, Bloomberg reported last month that Rio was among the potential bidders for a stake in First Quantum’s African copper business. The Canada-based miner is seeking to raise cash to shore up its balance sheet after its flagship mine in Panama was forced to close.

(By Dinesh Nair, Jack Farchy and Thomas Biesheuvel)