Investment Thesis

Demand for copper is going to increase dramatically between now and 2050 in order to achieve the needed energy transition. There is more than enough copper in the ground to meet this demand. However, getting it out of the ground is expensive and time consuming due to permitting issues. As a result, copper prices are likely to rise as demand outstrips supply. Mining companies are also subject to pressure from some investors and NGOs to be net-zero by 2050 for all scopes of their carbon emissions. This is an impossible task as they attempt to expand their production capabilities in markets with a more short-term horizon. Over past five years Anglo American’s stock price has ranged from a low of $6.20 in March of 2020 and a high of $27.43 in April of 2023 and was at $15.43 on October 21, 2024. It has a market cap of around $41 billion. It can be and should be taken private. This will enable the company to make the investments necessary to play its full role in the energy transition.

The Failed Deal

On April 24, 2024 Anglo American, a global mining company,  issued a press release stating “The Board of Anglo American plc (“Anglo American”) notes the recent press speculation and confirms that it is has received an unsolicited, non-binding and highly conditional combination proposal from BHP Group Limited (“BHP”).” BHP, which at that time had a market cap of around $135 billion (about $143 billion today), confirmed its offer the next day.  The day after, BHP’s proposal was rejected. BHP subsequently revised its proposal at a higher price but by May 29, 2024 the deal was dead; BHP withdrew its offer. Although BHP substantially raised its offer price, Anglo American cited the complex structure of the deal which would take 18 months to implement creating material risks to the company’s shareholders and other stakeholders as the reason for rejecting the offer.  At the time of final offer of $49 billion Anglo American market’s cap was $37 billion. Most recently, on October 16, 2024, the Financial Times reported that “BHP chief executive Mike Henry met government officials in South Africa last week, fuelling speculation that the Australian miner will resurrect its failed £39bn bid for Johannesburg-based rival Anglo American.” Anglo American declined to comment.

The Promise of Copper

Reuters described the offer as “a big bet on copper that could spark a scramble for mining assets as a bullish demand outlook and tight supply for a mineral crucial to the energy transition sends prices to multi-year highs.” It noted that the two companies combined would account for 10% of global copper production. In 2023 BHP was the second largest producer of copper at 1,389,022 metric tons and Anglo American was fourth at 1,147,300 metric tons. (Freeport-McMoRan is first at 2,058,910.28 metric tons.) Copper is the second largest source of revenues for Anglo American (after iron ore), accounts for about 25% of its revenues, and its production was up 24% from the previous year.

BHP’s enthusiasm for Anglo American’s copper assets is well justified. A May 2024 report “Copper Mining and Vehicle Electrification”  by the International Energy Forum notes that “Copper is the mineral most fundamental to the human future because it is essential to electricity generation, distribution, and storage. Copper availability and demand determine the rate of electrification, which is the foundation of current climate policy.”

It then vividly illustrates the challenge of copper playing this essential role. Just to support “business as usual,” between 2018 and 2050, the world will need to mine 115% more copper than has been mined in all of human history.  Simply to meet the copper needs of electrifying the global vehicle fleet, as many as six new large copper mines must be brought online annually over the next several decades. About 40% of the production from new mines will be required for electric vehicle-related grid upgrades.

The good news is that there’s plenty of copper out there  in the earth’s crust. Known reserves are 870 million tons and estimated copper resources are 5,000 million tons. The United States Geological Survey estimates there is a total of 2.8 billion metric tons of discovered copper plus another 3.5 billion metric tons of undiscovered resources. Since 1950 there has always been 40 years of copper reserves and 200 years of copper resources. Current production is around 25 million tons. A recent S&P report , “The Future of Copper,” estimates this needs to double by 2035. Say we could wave a magic wand, and this happened by next year. That’s 1,250 million tons, way below the current estimate of 5000 million tons, with some estimates being as high as 100,000 million tons.

However, getting this copper out of the ground will be challenging. Due to permitting challenges, it now takes about 20 years to bring a new mine online—after the copper deposit has been found and can cost tens or even hundreds of millions of dollars.  Wave another magic wand and say this was cut to 10 years.  Time and cost put significant pressures on a copper mining company in today’s markets. Exacerbating this is pressures from investors and NGOs for companies to implement carbon-transition plans for how they are going to get to net zero by 2050. Ignore the inherent contradiction of investors asking for these while still expecting short-term profits and ask just how sensible this really is? Short answer: “Nonsensical.”

The Opportunity for Anglo American

Consider Anglo American. Its 2023 Integrated Report reports 2023 Scope 1 emissions of 7.5 metric tons of CO2 equivalent (8.3  in 2022), Scope 2 emissions of 5.0 metric tons (5.0 in 2022), and Scope 3 emissions of 96 metric tons (105 in 2022), which represents nearly 90% of its emissions. While the company may be able to lower its emissions intensity, its absolute emissions will inevitably increase as it increases its capacity. And, unlike oil and gas, no one is calling for a halt of copper production.

So all this got me to thinking: “Why not take Anglo American private? It’s doable in terms of market cap and it would solve all the problems I’ve identified?” But I’m not an investor or deal guy so I did the simple and lazy thing and Googled “Could Anglo American be taken private?” Here what AI  Overview told me: “Yes, Anglo American could be taken private, as there has been speculation about a takeover by a rival or private equity firm. Some analysts believe that a takeover is inevitable, whether it happens this year or in the next few years.”

Just as a thought experiment let’s play this out a bit. The first question is how much would it cost? Let’s be generous and offer $50 billion, one billion more than BHP’s offer. Of course, the board would have to agree. I think there’s a good chance they would. This is a very generous offer and the company’s stock hasn’t improved at all based on what Anglo American proposed to do instead of accepting BHP’s offer. Going private is simple compared to the complex offer made by BHP. Management would like this as well. Instead of getting merged into a much bigger company and many of the top executives likely losing their jobs, they’d be taken out of the glare of the public markets and could focus on really building their business with a long-term perspective and not being subject to ridiculous pressures to be net-zero by 2050.

But the deal can only happen if the shareholders like it. Anglo American’s top 10 shareholders—which include BlackRock, BNP Paribas, Legal & General, Norges, Vanguard, and Wellington—hold about one-third of the total stock. Getting them on board will be key. Great price and, if properly financed, a pretty straightforward transaction.

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