South African backlash throws £31bn FTSE miner takeover into doubt

South Africa has thrown a £31bn bid for mining titan Anglo American into immediate doubt after a minister criticised the deal.

Gwede Mantashe, South Africa’s minerals resources minister, said he was against the takeover of Anglo by rival BHP Billiton, because the country’s experience with the company was “not positive”.

Mr Mantashe said BHP’s merger with South African miner Billiton in 2001, which led to the formation of BHP Billiton, “never did much for South Africa”.

Speaking to the Financial Times, he said: “What we saw is that it dumped coal and then created a small company called South32, which is now marginal.”

The comments suggest the takeover bid, which would create the world’s largest copper miner, is likely to face fierce political opposition in Johannesburg during an election year.

Anglo employs 36,000 people in South Africa, and the miner is deeply enmeshed in the fabric of the country.

BHP stunned the market by unveiling a complex £25.08 per share bid for rival Anglo in a deal which would reshape the global mining sector.

Anglo shareholders have been offered BHP shares worth £16.60. The remainder will be in shares in Amplats and Kumba, Anglo’s two South African listed subsidiaries.

The takeover would be in two steps, with Amplats and Kumba demerged to Anglo’s shareholders before BHP takes over the remainder.

BHP faced an immediate backlash from investors, who said the bid undervalued the company.

Abrdn fund manager Iain Pyle said the £25.08 bid was “opportunistic offer” seeking to take advantage of Anglo’s recent operational weakness.

“To fully reflect the longer term value of the assets it would need to be higher,” he said.

Nick Stansbury, from Legal & General Investment Management which is Anglo American’s eleventh largest shareholder, described the bid as a “highly opportunistic approach”.

A top 20 Anglo shareholder added: “The probability of BHP winning the deal at this price (£25.08) is zero. It’s a question about whether BHP is being opportunistic or if it’s more serious. If it’s more serious, they need to put up more money.”

South Africa’s Public Investment Corporation (PIC), Anglo’s biggest shareholder, also said it would study the offer carefully.

Anglo has been under pressure since a shock cut to production guidance in December sent shares crashing.

BHP’s approach could lead to a partial break-up of the group.

“It likely acts as a catalyst for management to think about how best to realise value from a diverse portfolio. Selling off assets individually may be a realistic way to create more value,” said My Pyle.

The company is considering a sale of De Beers to release cash as part of its defence, according to a report in the Wall Street Journal.

De Beers is valued at about $6.4bn, according to HSBC.

News of the bid had sparked anxiety inside De Beers, industry sources told the Telegraph.

The diamond miner has not been considered particularly profitable for the past two to three years and it has had to make greater financial concessions to the government in Botswana, where it still has decades of reserves left in the ground.

Matt Earle

Matthew Earle is the Founder of MiningFeeds. In 2005, Matt founded MiningNerds.com to provide data and information to the mining investment community. This site was merged with Highgrade Review to form MiningFeeds. Matt has a B.Sc. degree with a minor in geology from the University of Toronto.

By Matt Earle

Matthew Earle is the Founder of MiningFeeds. In 2005, Matt founded MiningNerds.com to provide data and information to the mining investment community. This site was merged with Highgrade Review to form MiningFeeds. Matt has a B.Sc. degree with a minor in geology from the University of Toronto.

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