After more than a decade in the wilderness, BHP Billiton, once the mining industry's most aggressive dealmaker, is gearing up for a return to large-scale mergers and acquisitions.
BHP has expanded its trading team to include one in London and is interested in pursuing a transformational deal, according to people familiar with the matter. The company is reviewing including Freeport McMoRan Inc., people familiar with the matter said. And Glencore Plc, while stressing there was no indication it was preparing any bids.
A series of major changes at the world's largest mining company since chief executive Mike Henry took over in early 2020 will culminate in a big deal. The company is looking to expand in metals needed for a green energy transition and is exiting the oil and gas sector, while ploughing billions into a large new potash mine in Canada. A plan will be put to a shareholder vote this week. BHP said the plan would make its London listing more "flexible".
After a series of deals went horribly wrong at the height of the last commodities boom, the biggest miners have largely rejected big mergers and acquisitions. The excess cash has been returned to shareholders through substantial dividends and buybacks. But as the global energy transition gathers pace, there is growing recognition that it is vital to replace fossil fuel assets with mines that produce the materials needed for decarbonisation, such as copper and nickel.
BHP billiton is already one of the biggest copper miners and a nickel supplier to Tesla. Iron ore, however, remains its biggest earner and a leading producer of coal for steel production.
BHP's trading team is examining options and operating models for rivals such as Glencore and Freeport, the US copper giant. Vale's base metals unit is also on its radar, people familiar with the matter said.
The work is still in its early stages and is focused on internal rather than external advisers, people familiar with the matter said. Valuations of some of its potential targets near all-time highs could also be a stumbling block, according to people familiar with the matter.
A BHP spokesman said the company does not comment on market rumours or speculation.
One consideration for BHP is that it is prepared to act if valuations of its competitors fall. Freeport has a market capitalisation of about $65bn, while Glencore has a market capitalisation of $73bn, with both companies trading near multi-year highs following a rebound in commodity prices. There is already a realisation within BHP and rival Rio Tinto Group that they missed out when smaller rivals plummeted in market value in the past.
BHP itself has a market capitalisation of about $168bn and its share price is near an all-time high.
London stocks were little changed at 3:10 p.m., while Glencore was up as much as 2.4 percent, its highest intraday record in nearly a decade. The world's largest commodities trader has surged about 50% in the past 12 months, helped by rising coal and copper prices. The company expects record profits and a fat dividend when it reports earnings in February. Freeports rose 4.7 per cent to their highest level since February 2012.
BHP must convince shareholders that the time is right for a deal and show it is not paying too high a price. The mining industry has been plagued by disastrous deals since the peak of the last supercycle, which destroyed billions of dollars in value, and many investors are continuing to push for discipline.
A bid for both would challenge BHP's strategy. While Glencore is one of the largest copper miners, it is also a major shipper of thermal coal -- a commodity BHP has sought to exit -- owns dozens of complex assets in some of the world's most difficult jurisdictions and faces continuing legal investigations, including from the US Department of Justice.
Freeport, meanwhile, owns a string of ageing US copper mines that could eventually cost billions of dollars to close.
While interest in bigger deals is still in its early stages, BHP's quest to increase its exposure to copper and nickel has shown signs of increasing activity on a smaller scale.
The company this month agreed to pay $40m for a stake in a nickel project in Tanzania and last year bought a US start-up that processes copper from waste rock. It has also held talks with billionaire Robert Friedland about taking a stake in an undeveloped copper project in the Democratic Republic of Congo.
But it has faced some challenges. The company suffered an embarrassing loss when it was forced to buy a Canadian nickel miner within six months after being outbid by Australian billionaire Andrew Forrest. BHP has also been embroiled in an internal dispute over SolGold Plc during its years-long pursuit of the copper mine's developer.
As the world's biggest mining company, BHP billiton is no stranger to its biggest rival. In 2008, it abandoned a hostile bid for Rio Tinto Group, the world's second-largest mining company, in what would have been the industry's biggest-ever deal. It also bought Potash Corp. of Saskatchewan for about $40 billion.
BHP's last major deal was the $12.1 billion purchase of Petrohawk Energy Corp in 2011. The move into shale proved to be a costly mistake, and after spending billions of dollars to expand the business, the company cut its losses and sold to BP in 2018.
