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BHP is unlikely to attack Anglo or Teck in its pursuit of organic growth

Investors and bankers on Wednesday said that BHP, the world's largest copper miner, is focusing on growing its own assets as it transitions to a new leadership. This means it will not be able to gatecrash a planned $53 billion merger between Anglo American Resources and Teck Resources.

Anglo American, a London-listed company, and Teck Resources, a Canadian firm, announced their merger on Tuesday. This is the second-largest tie-up in this sector. The goal of the merger is to create a global heavyweight focused on copper.

The deal was announced just over a month after BHP canceled a $49-billion bid for Anglo, which would have boosted the Australian miner’s position in the metal considered essential to the energy shift.

Investors said that BHP's strategy has been consistent, and it suggests it will not be making a move against Anglo or Teck.

Andy Forster, portfolio manager of Argo Investments, Sydney, which owns BHP shares, said that any move by BHP would be a surprise, given BHP's statement, "We have moved forward."

BHP spent instead $2 billion on a stake in two Argentinian projects with Lundin, including the Josemaria Mine, whose life last month was extended by six more years. It also has pushed to increase production at the top copper mine Escondida, in Chile.

BHP refused to comment on the AngloTeck deal, but pointed out recent comments made by its CEO who said that M&A is just one of many levers for growth.

Mike Henry, CEO of BHP, said in an August results call that it was difficult to find the right combination between commodities we want, and asset quality we desire, at a cost that would still allow us to unlock value for BHP's shareholders.

Anglo, despite its recent inability to sell its Australian coal assets has worked hard to increase its share price compared to a year earlier, according to a M&A banker.

Both miners are now in the game. Anglo's shares are up. They could likely put in a strong defence, like they did the last time," said he. Anglo shares are up 20% since BHP's late April bid, while BHP has dropped 8%.

Two people told me that the deal was clever because it benefited Canada in ways that other companies that might be interested in buying Teck would find difficult to duplicate, like moving the headquarters of the new company to Canada.

The Australian government required that the holding company's headquarters be in Australia as part of the conditions it set for the approval of BHP's 2001 merger with South Africa’s Billiton.

Another potential stumbling-block is succession. BHP Chair Ross McEwan succeeded Ken MacKenzie as CEO in March after a decade of his tenure. Henry, however, is now more than five years deep into the typical six-year period, so BHP's focus may be on replacing him, rather than on large M&A.

Bankers don't rule out BHP's possible involvement in the future, particularly if the deal does not go as planned.

A M&A banker who was not directly involved with the deal said, "You would have to seriously think about it. The two most obvious targets for a deal that has no premium." The parties anticipate the deal to take between 12 and 18 months to close. They have time. A deal does not have to be completed tomorrow.

(source: Reuters)