BHP and Anglo remain split on South Africa as time runs out

Yet the key hurdle to any deal remains the same as it has for the past five weeks: BHP’s complicated transaction structure. Anglo argues that the requirement that it first spin off its majority stakes in two South African miners creates too much risk for its own investors who will end up holding those shares, and wants BHP to either change the structure or compensate its shareholders for any loss of value as a result of the spinoffs.

The two sides have struggled to find a resolution to the impasse, according to people familiar with the matter, who asked not to be identified because the talks are private.

The situation remains fluid and could change at any point. But with time running out, BHP will likely need another extension to the UK regulatory deadline to keep its bid alive. As things stand, there’s no guarantee that Anglo will make that request, the people said.

The outcomes of this week’s talks could have far-reaching implications for the mining industry. BHP is already the sector’s most powerful company, and a successful deal would leave it towering over its biggest rivals. The bid has also cemented the return to large-scale M&A among the biggest mining companies, after a string of disastrous deals left BHP and its rivals on the sidelines for over a decade.

The negotiations will determine the fate of one of mining’s oldest companies. Anglo American, which traces its roots in South Africa to its founding 107 years ago, was left vulnerable to BHP’s approach after a series of setbacks over the past year that depressed its share price. While rebuffing BHP’s approaches, Anglo announced its own dramatic restructuring plan that would see it exit diamonds, coal and platinum — including the South African platinum firm that BHP wants it to spin off.

From the moment BHP’s takeover approach first became public, South Africa has loomed front and center of a potential deal. It is home to some of Anglo’s biggest operations, employing tens of thousands of employees, and the company has deep political and social ties to the country.

Anglo is concerned BHP’s demand that it first exit Anglo American Platinum Ltd. and Kumba Iron Ore Ltd. could leave the newly independent Johannesburg-listed companies to carry the cost of any concessions imposed by South Africa, reducing their value and ultimately penalizing the current Anglo investors who would receive the shares in the spinoffs.

People close to Anglo said that BHP has failed to acknowledge the scope of the execution risks of its deal structure and that the company needs to make material changes to its proposal. So far BHP has failed to do that, the people said.

However, people with knowledge of BHP’s position countered that Anglo has yet to lay out exactly what the issues are, preventing them from providing clear remedies. Advisers to the company are frustrated that Anglo is presenting unquantifiable and unspecified obstacles to the structure.

Spokespeople for Anglo and BHP both declined to comment.

Anglo’s shares fell 2.2% on Tuesday, to trade 14% below the value implied by BHP’s most recent proposal.

BHP has targeted Anglo primarily for its copper mines, and the combined company would easily become the world’s biggest producer of the metal essential to decarbonize the global economy. Benchmark copper prices hit a record last week and have surged about 23% this year.

Anglo, under CEO Duncan Wanblad, has provided its own plan to focus on copper mines and iron ore, its two biggest and most consistent earners and the businesses that BHP is most attracted to. It will also stick with its Woodsmith fertilizer project in the north of England that some investors have pushed for it to quit, while dramatically cutting spending.

Henry and Wanblad also have a large group of shareholders in common, who could have the ability to pressure either side to find a way to make a deal, or alternatively draw the line and end negotiations.