Mike Henry, CEO of Australian mining company BHP, stands beside a picture of the company’s Jansen potash project, located in Saskatchewan, on Oct 17, 2023.Fred Lum/The Globe and Mail
A tower soaring over the Saskatchewan prairie is playing a key role in a hotly contested global mining takeover: BHP Group Ltd.’s BHP-N hostile US$43-billion bid for struggling rival Anglo American PLC NGLOY.
BHP executives spent the past two weeks campaigning for support from Anglo shareholders ahead of Wednesday’s deadline for formalizing their offer, as required by the British regulations guiding an acquisition of London-based Anglo.
Since news of BHP’s overtures first leaked in late April, Anglo has consistently refused to even engage in talks. If BHP can’t pressure Anglo into negotiating, the Melbourne-based miner faces the embarrassing prospect of abandoning a high-profile courtship before getting to first base.
Last week, BHP chief executive officer Mike Henry took the stage at a Bank of America conference in Miami to make his pitch to institutional investors. In two sentences, here’s the Canadian-born CEO’s argument: BHP commands a premium valuation from investors because the world’s largest mining company has consistently delivered on major projects. In contrast, Anglo’s stock trades at a discount because its management team has failed to execute on past promises.
That’s where Saskatchewan comes into play.
The first of 10 slides in Mr. Henry’s Miami presentation was a picture of the towering head of the mine shaft in the centre of the Jansen property, 140 kilometres east of Saskatoon. It’s the largest single investment BHP has ever made, a $14-billion commitment to a mine with 100 years of reserves. To date, Jansen has come in on time and on budget, no small feat when inflation is soaring, with support and significant participation from Indigenous groups.
Mr. Henry used Jansen as a springboard into talking up BHP’s track record as the safest, lowest-cost producer of metals that both his company and Anglo mine, with a focus on copper, a mineral critical to the energy transition. He highlighted BHP successfully exiting ownership of commodities that no longer fit its strategy, such as oil and coal.
BHP’s boss also did something cheeky.
A few hours before Mr. Henry took the stage, Anglo unveiled its counter to BHP’s takeover, a plan that included disposing of steel-making coal, diamonds and nickel businesses, and spinning out its stake in a platinum miner. Anglo would emerge from this crash diet focused on copper, iron ore and fertilizer.
In response, Mr. Henry showed investors in Miami an Anglo investor presentation from four years ago, proposing much the same divestment strategy. None of these initiatives came to pass and Anglo is now running out the same game plan. He told the crowd Anglo has consistently failed to execute, a history of poor performance that now weighs on its stock price.
BHP’s all-stock offer, on the other hand, offers a way for Anglo shareholders to receive “immediate and ongoing value,” Mr. Henry told the crowd.
As with most takeovers, the issue for Anglo’s board and shareholders comes down to price. Last week, BHP bumped up its opening offer by 15 per cent to the equivalent of £27.53 a share. In a report, a team of analysts at RBC Capital Markets said Anglo investors are holding out for a bid above £30 a share. Anglo’s shares closed Monday in London at £26.80.
Based on their estimates of synergies from combining the two miners − up to US$6.8-billion – the RBC team cautioned BHP against raising its offer to £30 a share or more. At this level, they said, buying Anglo “raises significant project execution, synergy and commodity pricing risk.”
In Miami, Mr. Henry made it clear BHP values “a very, very hard-won reputation for discipline” and won’t overpay for Anglo. He’s offering investors a chance to swap their stake in an underperformer for shares in a miner with a track record for getting stuff done, at mines in Saskatchewan and around the world.