Zhitong Finance learned that BHP Billiton (BHP.US) decided to abandon plans to buy Anglo-American Resources Group for 49 billion US dollars. Investors welcomed this. Over the past six weeks, Anglo-American Resources has rejected three takeover proposals from its larger rivals. This development ended the tense standoff between the two global mining giants, and shareholders warned BHP Billiton not to pay too much to gain control of the Anglo-American Resources Group. Although BHP Billiton shares listed in Australia fell 1.75% on Thursday, the decline was the same as that of its peers.

Before BHP Billiton decided to decline a binding takeover offer, Anglo-American Resources said it would not approve the Australia-based mining group to further extend the acquisition deadline to finalize the details of a deal. The deal required Anglo-American Resources Group to first divest its South African assets.

Andy Forster, senior investment officer at Argo Investments, who holds shares in BHP Billiton, said: “This is one of the best opportunities for them, and it's always difficult to complete. I appreciate their self-discipline.” Forster said that the timing for BHP Billiton was good, but the complexity of the deal required a spin-off, and the rise in copper prices made it difficult to execute.

Winning the Anglo-American Resources deal would be a decisive victory in the career of BHP Billiton CEO Mike Henry, who has reshaped the company since taking office in January 2020, including the $6.4 billion acquisition of copper producer Oz Minerals last year.

Matthew Haupt, chief portfolio manager at Wilson Asset Management, BHP Investors, said: “I don't think this would have a bad effect on Mike Henry and BHP Billiton. It was an opportunistic acquisition, and it was very meaningful.”

What's next for BHP Billiton? Find other mining deals

BHP Billiton aims to gain control of Anglo-American Resources Group's valuable copper assets in Latin America and expand its copper assets, which are critical to the global transition to clean energy and electric vehicles, as well as its metallurgical coal assets in Australia.

Brenton Saunders, portfolio manager at Pendal Group, said: “As an investor, the added value of this proposed deal is not obvious. Yes, this will bring more copper to the portfolio, but depending on the price they pay for copper, this won't necessarily increase the share price.”

Mining sources said that BHP Billiton's intention to acquire Anglo-American Resources Group reflects the growing tendency of miners to achieve growth through acquisitions rather than construction assets, as the cost of developing new mines continues to rise, and the schedule approved by regulators has been greatly extended. According to S&P Global data, it now takes an average of more than 16 years to build a new mine. Ord Minnett's private client advisor John Milroy said: “It is clear that they are still actively acquiring and will be screening other targets to expand their copper portfolio.”

Royal Bank of Canada analyst Kaan Peker said that BHP Billiton may target a London-listed company or Canada's Lundin Mining. Both companies have copper assets in northern Chile, and BHP Billiton also has operations in Pampa Norte in northern Chile. “Antofagasta has the strongest synergy... but they're expensive,” Peker said. Most of these acquisitions require a high premium, so you have to have lots of synergy to justify it.”

Pendal's Saunders said that BHP Billiton will have to turn its attention to its own growth opportunities in Pilbara iron ore and copper in South Australia and Chile, rather than chasing Anglo-American Resources Group, and is expected to increase dividends.

If it wants to buy Anglo-American Resources Group, BHP Billiton will now have to wait 6 months before getting in touch with the company again under the UK Companies Act. If a new participant bids to buy it's acquisition target, it can return more quickly.

After BHP Billiton dropped the acquisition proposal, Anglo-American Resources said it would focus entirely on implementing plans to add value to shareholders, including divesting less profitable assets to focus on expanding copper production. “BHP Billiton will wait six months to see how investors respond to Anglo-American Resources Group,” Peker said.