BHP Makes $38.8 Billion Bid for Anglo American

BHP with a market valuation of $149B made a $38.8B bid for Anglo American. Anglo’s shares jumped 12% early today to a market valuation of $41B following the bid.

In a statement Anglo American confirmed that “it is has received an unsolicited, non-binding and highly conditional combination proposal from BHP Group Limited (“BHP”).” And that “there can be no certainty that any offer will be made nor as to the terms on which any such offer might be made.”

The primary motivation for the deal is BHP’s desire to obtain Anglo’s copper mines. Copper demand and prices are expected to surge as global demand shifts away from fossil fuels. Another factor is the sharp decline in Anglo’s share prices, down about 47% over the past two years.

Should the deal go through we expect De Beers to be sold off, creating an unprecedented opportunity for the restructuring of the diamond trade. De Beers is under pressure due to strong competition from synthetic diamonds and weaker demand from China. In February, Anglo said it would take a $1.6 billion impairment charge on De Beers. Also, De Beers recently announced a 23% decline in first quarter production. For 2024 De Beers expects a 10% reduction in output to 26-29 million carats and an increase in costs from $80 per carat to $90 per carat.

There are also reports that Anglo is considering selling De Beers. The Wall Street Journal reported today that Anglo “has held conversations in recent weeks with potential buyers, including luxury houses and Gulf sovereign-wealth funds.”

Duncan Wanblad, CEO of Anglo American has said: “We are progressing through our asset review to optimize value by simplifying and improving the overall quality of the portfolio… Nothing is off the table.” One way or the other De Beers will be in play.

We believe that there is opportunity for the natural diamond trade to recover as synthetic diamond prices fall to the extent that they are no longer suitable for engagement rings and robust demand from India makes up for reduced Chinese demand. Whomever ends up with De Beers, perhaps Botswana, will have to return to basics. They will have to rebuild natural demand for natural diamonds, based on the value of scarce natural diamonds as the ultimate gift of commitment between people who love each other.

Main image: Shutterstock.