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Copper continues to rise in London, where it is trading at around $9865 (for its spot price).
This good performance is partly due to the weakening of the greenback and partly to less rosy supply prospects.
Chile, a heavyweight in copper production, has in fact revised its production growth forecasts downwards for this year.
Domestic production is expected to be 5.51 million tonnes, compared to the previous estimate of 5.63 million tonnes.
Mining companies are trying to shore up copper supplies in the years ahead, due to expected shortages and the metal’s key role in the energy transition, with uses in electric vehicles, power grids and wind turbines.
Mining giant Anglo American rejected a takeover offer from rival BHP Group on Friday, saying the offer “significantly undervalues” the company and its future prospects.
Details of BHP’s takeover offer
On Thursday, Australian firm BHP said it had made a full takeover offer that valued the smaller company at 31.1 billion pounds ($38.9 billion); the acquisition would have created the largest mining company in the world.
The offer included an obligation for Anglo American to spin off its entire holdings in South African companies Anglo American Platinum Limited and Kumba Iron Ore Limited, two entities that together account for a sizable portion of the company’s copper production.
Anglo American chairman Stuart Chambers said the proposed restructuring was “highly unattractive, creating substantial uncertainty and execution risks borne almost entirely by Anglo American, its shareholders and other stakeholders”.
Anglo American board members unanimously rejected BHP’s “unsolicited, non-binding and highly conditional” proposal.
Anglo American president Stuart Chambers noted that copper represents 30% of Anglo American’s total production and expects the value of copper to increase due to producers’ growing difficulty in meeting global demand.
This represents a great opportunity to create value for shareholders in the months and years to come; therefore, selling now at these prices would be a strategic error. In the opinion of Stuart Chambers, “the BHP’s proposal is opportunistic and fails to assess Anglo American’s prospects, significantly diluting the relative value of Anglo American shareholders’ upside ownership relative to BHP shareholders”.
Activist fund Elliott Management had predicted industry consolidation
In recent months, Elliott Management has put together a stake of around $1 billion in mining company Anglo American (LSE:AAL), news confirmed in a regulatory filing on Friday, in which Elliott Advisors confirmed it holds a 2.5% stake. % in Anglo American.
The position is worth around £891 million, or around $1.1 billion.
Anglo-American stocks rose as much as 5% on Friday’s news. Elliott has extensive experience with mining companies, including with suitor BHP in 2017.
Elliott Management had urged BHP to spin off its oil assets and move its main listing from Australia to the London Stock Exchange for better liquidity and capitalization of the company.
BHP initially rejected such proposals, before exiting the oil business in 2021. The Australian mining company is one of the largest in the world, with a market capitalization of $145 billion and mining revenue of $53.8 billion in 2023
Analysts believe BHP’s offer could therefore just be the opening move in what appears to be a wider phase of consolidation within the sector.
BHP could raise Anglo American or make a mega takeover offer for Rio Tinto.
Could it be interesting to buy Anglo American shares at these prices?
At current prices, Anglo American shares are quoted with a forward Ev/Ebitda of 5.33 and 5.06 on the results expected for 2026.
The EV/Sales is 1.81 and 1.76 respectively, values that are even more than acceptable.
Industry consolidation seems inevitable. We reiterate what we wrote in our recent article of April 11th https://www.word2invest.com/2024/04/un-nuovo-bull-market-del-rame/.
Citigroup analysts believe the second secular copper bull market of this century is now underway, some 20 years after the first such cycle. Citi said Monday that it expects copper prices to rise sharply in the coming months, reaching an average of $10,000 per tonne by the end of the year and rising to $12,000 in 2026, under the bank’s base case scenario, which assumes only a small increase in cyclical demand growth during 2025 and 2026.
The other possible hypothesis is an explosive rise in prices, if a strong cyclical recovery were to occur at any time, with the possibility that Copper prices could increase by more than 60% from current prices, up to reaching 15,000 dollars the ton in our bullish scenario,” Citi analysts said in a research note.
Analysts at Bank of America also raised their copper price target for 2024 to $9,321, from the previous forecast of $8,625 saying copper is at the epicenter of the energy transition, while there is no growth parallel to the mineral supply. At the same time, demand in the United States and Europe is expected to recover after a period of slowdowns.
This factor linked to economic growth is added to the increase in demand resulting from the energy transition, resulting in a deficit in copper supply compared to demand during 2024.
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