By Giulia Petroni and Christian Moess Laursen

THE NEWS: U.K. mining giant Anglo American rejected a $39 billion takeover bid from BHP, saying the proposal significantly undervalues the company and is highly unattractive to shareholders.

Australia's BHP--the world's largest miner by market cap--approached its rival with an all-stock offer contingent on Anglo American spinning off its shareholdings in two South African listed units, Anglo American Platinum and Kumba Iron Ore. The deal would have been the biggest in the mining sector in years.

Separately, The Wall Street Journal reported Thursday that Anglo American is considering a sale of its diamond unit De Beers. According to people familiar with the matter, the company has held conversations with potential buyers, including luxury houses and Gulf sovereign-wealth funds.

MARKET REACTION: At market opening on Friday, Anglo American shares were down 0.4% at 2,550.00 pence, while BHP traded 1.2% lower at 2,283.00 pence. Early on Thursday, Anglo American shares soared 12%, while BHP shares slipped about 3%.

ANALYSTS' COMMENTS: Anglo American's copper assets are seen as the main driver of BHP's offer, according to RBC Capital Markets analysts. The tie-up would create the world's largest copper mining company, accounting for around 10% of global output. Peruvian and Chilean copper assets are particularly in focus, RBC said, with the Collahuasi and Los Bronces mines in Chile seen as an opportunity to expand and potentially lower costs. Both have large copper reserves, with Los Bronces accounting for around 2% of the world's known copper resources.

A potential deal could however spark competition concerns as the combined entity would consolidate control of key commodities, SP Angel analysts say. BHP's approach could in fact be the start of a long road, especially if regulators and competition authorities are drawn into the process. SP Angel said a potential consolidation of the industry giants wouldn't necessarily increase the output of key commodities or encourage exploration to replenish depleting mineral-resource inventories.

According to Jefferies, unless Anglo American proves unwilling to engage, other bidders could emerge. The company is a good fit for BHP or other mining majors due to potential synergies, asset quality and commodity exposure, especially copper. It is likely that Anglo American will push BHP for a higher premium on the all-share offer of 25.08 pounds a share ($29.19) as the valuation seems low, Berenberg analysts say.

The takeover offer also shows the London stock market is shrinking fast, according to AJ Bell. The firm's investment analyst Dan Coatsworth said London Stock Exchange Group Chief Executive David Schwimmer needs to find ways to replenish the pot of companies on the London market, as the takeover spree has now shifted to large, top-tier companies.

CONTEXT: The offer comes after Anglo American shares experienced a sharp decline, creating a value opportunity. The firm's market value shrank last year due to operational setbacks and downgraded production guidance.

Speculation that the British company could be a target for takeover emerged late last year, after the miner cut its production guidance for coming years, shaking the market. The company cited operational issues at a key copper mine in Chile and persistent logistical woes at its iron-ore operations in South Africa. Meanwhile, slumping platinum-metals and diamond prices further added to its headwinds.

Since Chief Executive Duncan Wanblad took the reins in April 2022, Anglo American's market capitalization has diminished from around $72 billion to around $34 billion today. Its shares have declined roughly 41% since then.

BHP's offer also comes at a time when copper prices are up 15% this year so far, boosted by expectations of tight global supplies and an optimistic demand outlook. Three-month copper is currently at $9,879.00 a metric ton. The prospect of shortages in copper concentrate is driving the rise, with the Cobre mine in Panama coming offline and producers in Latin America struggling to ramp up output.

According to market watchers, prices are set to rise sustainably, driven by the expansion of clean-energy technologies and anticipated looser monetary policy in the U.S. and Europe. According to financial-services group MUFG, copper is forecast to reach $12,000 a ton by the end of next year as scarcity pressures intensify.

WHAT'S NEXT: Anglo American's rejection reflects concerns that BHP had undervalued the company and that it might have to come back with a better offer. BHP's move could also potentially trigger rival bids, according to analysts.

"If BHP does indeed continue to pursue this deal, we would be surprised if other bidders do not emerge," Jefferies analysts wrote in a research note. According to SP Angel analysts, alternative offers could come from a Chinese or Indian firm.

"The initial approach by BHP could be the start of a protracted process, which may possibly draw in other suitors and which could see Anglo American either lose its independence or reinvigorate it as a stand-alone force in the industry," they said.

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(END) Dow Jones Newswires

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