The takeaway from BHP’s bid for Anglo: more mining investment is needed

BHP’s takeover attempt of rival Anglo American may have failed but the frenzied six-week pursuit has invigorated the mining industry, lifting share prices across the sector and drawing attention to the critical role mining has to play in decarbonising the global economy.

Now the challenge for executives is how to convert that attention into the level of financial support the industry needs to produce the metals required for the renewable power plants, power lines and electric vehicles at the heart of the energy transition.

For all the arguments by BHP chief executive Mike Henry that a merger would “grow the pie of value for both sets of shareholders”, combining the two businesses would have done nothing by itself to increase the amount of metal available for tomorrow’s clean energy infrastructure.

The shortage of copper is expected to be particularly acute as electrification intensifies. Demand is set to almost double to 50mn tonnes per year by 2035, according to S&P Global Commodity Insights, but there are very few new mines under development.

Through acquiring Anglo’s coveted copper projects in Chile and Peru, BHP would have cemented its position as the top producer of the metal, generating about 10 per cent of global supply. But just because BHP would have been bigger does not necessarily mean it would have been more likely to build new mines than the two separate companies.

Finding and developing mineral deposits is time-consuming and costly. Toronto-listed Ivanhoe Mines, which runs one of the world’s most exciting new copper mines, Kamoa-Kakula in the Democratic Republic of Congo, staked the ground in the 1990s and began production only in 2021. 

For the past decade at least, most shareholders have preferred companies to focus on boosting returns from existing assets rather than pursuing new projects in challenging operating environments such as central Africa. BHP, for example, stopped pursuing projects in the Congo around 2012.

Mining companies have not helped themselves. Cost overruns, environmental mis-steps and poor shareholder returns have all contributed to declining capital expenditure budgets.

At the same time, investors have left the sector. Commodities represent about 2 per cent of total assets under management today, down from almost 9 per cent in 2009, according to an analysis of more than 350 funds by Switzerland-based Pala Investments.

The energy transition has provided an opportunity for mining executives to change the public narrative about the sector. Rather than an industry that can be dismissed as polluting, destructive and part of the problem, it could be viewed as part of the solution. “You will simply not be able to build a new-energy system and reduce the world’s CO₂ emissions without getting sufficient access to a number of minerals,” Jakob Stausholm, chief executive of Rio Tinto, told the Financial Times last year.

But while more stakeholders have begun to acknowledge the role mining must play in the path to reducing carbon emissions, investor capital is yet to follow at the levels needed.

“The mining sector as a whole needs a completely different level of recognition for the role it plays in the global economy,” said Adam Matthews, chief responsible investment officer at the Church of England Pensions Board.

The Church of England, which is a small shareholder in both BHP and Anglo, opposed the takeover, precisely because Matthews said it was more likely to shrink the sector — and future metal supply — than to increase it. “We believe a strongly backed Anglo is better for the mining sector in general and for the global transition,” he wrote after talks ended last week.

Matthews also chairs the Global Investor Commission on Mining 2030, a multi-stakeholder initiative backed by 82 financial institutions, that aims to attract long-term capital to the sector, in part by improving social and environmental standards. “We need to recognise that investors are not properly valuing this sector and in particular those companies developing the most socially responsible approaches,” he said.

Western governments that had largely ignored the mining industry for many years have begun to see the importance of developing and maintaining secure supplies of metals and minerals. The US, UK and EU have all launched or refreshed their critical minerals strategies, which, though not perfect, seek to provide more support to the sector. If BHP’s failed takeover means more investors do the same, then maybe some good will have come out of its attempt.

tom.wilson@ft.com