BHP’s (ASX:BHP) $220 billion unification plan, which would see it become 10% of the ASX200, is in large part about building its heft to pounce on M&A opportunities as they emerge.

Bloomberg reported overnight that planning to capitalise on that via a potential “transformational deal” is in train, with BHP pumping up its dealmaking team in London to chase a big fish.

BHP’s chosen “future facing commodities” including nickel, copper and other base metals are the reputed target, with some of the world’s biggest mining companies Freeport McMoran, Glencore and the base metals business of Brazilian iron ore miner Vale potential targets.

It would mark a massive shift in BHP’s attitude to M&A, which has thawed recently. BHP hasn’t made a company-sized acquisition since the unmitigated disaster of its US$11.2 billion takeout of US shale play Petrohawk.

But it recently let the shackles off for the first time post-boom by bidding unsuccessfully against Andrew Forrest for Canadian nickel explorer Noront Resources and making a US$50 million investment in Kabanga Nickel in Tanzania, one of the world’s largest prospective nickel sulphide mines.

The unification vote is expected to pass tomorrow, limbering BHP up for more decisive corporate activity that could signify a genuine return to the mining industry’s value destroying boom times.


Price will be high, benefits uncertain

RBC Capital Markets’s Europe analyst Tyler Broda said any deal would be massive, complex and take months to complete and could run into a number of issues.

He believes BHP will need to pursue M&A though to grow its exposure to metals required for green energy and ESG-friendly industries like nickel, copper and potash, with its iron ore business making up an estimated 57% of BHP’s NAV.

“(BHP CEO) Mike Henry has not been afraid to show leadership in pursuing transformational changes for BHP (unification, petroleum spin, coal sales) and we believe investors are supportive thus far,” Broda said.

“With the size and scale of the iron ore business, even in a weaker long-term price environment, meaningful diversification will need to come inorganically. With an EV of $180bn BHP realistically would have financial capacity to pursue most imaginable deals (RBCe 2022 EBITDA is $34.7 bn, meaning say transitory 3x leverage would be c. $100bn in capacity).”

A major stumbling block will come down to valuations and whether BHP will offer something to shareholders of other majors. Glencore’s EV is an eye-watering US$104 billion although 32% of that is made up of the trader’s marketing division.

Freeport’s is US$77 billion and is in a massive growth push at its Grasberg mine in Indonesia, one of the largest copper and gold mines in the world, while Vale’s nickel and copper assets (more heavily weighted to nickel with its Sudbury and Voisey’s Bay mines in Canada) have an EV of US$18 billion.

“However the practicalities of any of these deals would be highly complicated, and especially in copper, likely to run into anti-trust challenges,” Broda said.

“We think that either Glencore or Freeport would make a solid strategic fit – as would Anglo American or parts of Nutrien and a list of smaller copper or nickel producers/developers – but none of these major companies have stressed balance sheets; so in the current environment top price would need to be paid (this said, a 30% premium to current prices for GLEN would leave the company still trading under fair value based on our current estimates).

Broda said it was also unclear what value BHP would bring to Anglo or Glencore shareholders, who enjoy the benefits of more diversified portfolios.

“So although we can see a deal happening, something of this magnitude would take months in our view,” he said.

“We already have a preference for GLEN and AAL over BHP and RIO in part precisely for the themes raised above – BHP (and RIO who is also concentrated) may need to do something on the M&A front which could add to volatility while GLEN (divestment process) or AAL (sufficient diversification and growth) don’t have to.”


Lynas charters own ships to take advantage of $100/kg NdPr prices

Those shipping delays we heard about back in 2021 are showing no signs of abating and the ASX’s premier rare earths stock Lynas Corporation (ASX:LYC) is taking matters into its own hands.

The company has taken to chartering its own vessels to get rare earths concentrates from its Mt Weld mine near Laverton in WA to its downstream processing facility in Kuantan after seeing transit times on commercial liners from Fremantle to Kuantan explode from 15 days in March last year to 33 days in December.

Despite the extra costs, Lynas says it will use a combination of charter and commercial boats to ensure continuity of supply to customers.

“At one stage we were looking at a really challenging number of containers sitting in ships or in transhipment ports, it presented itself as the only logical solution and we think it continues to be a logical solution moving forward,” Lacaze said on an analyst call.

“It certainly underpinned better performance seen in December than we’ve seen in November or October.”

The arrangement is likely to be a feature of Lynas’ business for some time to come, with global container shipping issues unlikely to die down any time soon.

At stake is record revenues for its NdPr product — it’s the largest producer outside China and has just seen prices top US$100/kg for the first time since the first rare earths boom in 2011.

Lynas made $202.7m in sales (up from $121.6m in the September term) as prices in China hit US$105.90/kg with customers saying security of supply was more important than price.

It produced 4209t of rare earths oxide and 1359t of NdPr in the December quarter, up from 3166t and 1255t respectively in the September quarter, with $674.2m of cash in the bank as of December 31 as it progresses plans on a major processing facility in Kalgoorlie.

While the WA border opening and the risk of rising Covid cases will prove a challenge, Lacaze said Lynas had a proven model in Malaysia that had helped maintain operations through its outbreaks.


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