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South Africa could be a thorn in BHP’s side as it makes £31bn Anglo American bid

South Africa’s mining minister was campaigning in Rustenburg, the northern capital of the country’s platinum belt, when news broke of BHP’s £31bn proposal to take over Anglo American.

Five weeks before critical general elections for the ruling African National Congress government, Gwede Mantashe was quick to shoot down the approach, telling the Financial Times that South Africa’s previous experience with BHP was “not positive”. The Australian miner “never did much for South Africa,” he added.

The ANC veteran has a long history of locking horns with foreign mining operators but his barbed remarks — even as he was out championing the sector that has been crucial to propping up President Cyril Ramaphosa’s government — underscores what a sensitive matter such a takeover means for Pretoria.

Anglo, whose largest investor is South African state entity Public Investment Corporation (PIC), has spent more than $6bn in the country in the past five years. It has been a driving force behind national business efforts to help fix troubled state-owned enterprises Eskom and Transnet, implement market reforms in electricity and logistics, and revive economic growth.

Winning over the state will be paramount for BHP or any other would-be bidders. Anglo’s board said it was considering the offer, which hinges on exiting two of the company’s prized South African assets that have been laid low by the country’s rolling blackouts and freight chaos in getting iron ore to world markets.

The Anglo American Platinum Waterval smelter site in Rustenburg
The Anglo American Platinum Waterval smelter site in Rustenburg, the northern capital of the country’s platinum belt © Bloomberg

“Anglo American is a local mining story that goes back more than 100-years in South Africa,” said Zwelakhe Mnguni, chief investment officer for the Johannesburg-based Benguela Global Fund Managers. “There are fewer and fewer companies that believe in the country, and have invested in it like Anglo. It has a rapport with the government, and understood the lay of the land, and if this vanishes, I don’t see BHP filling that gap.”

Few companies have shaped a nation’s history the way that Anglo has South Africa’s since the second half of the 20th century. BHP’s offer will come up against a legacy that began in 1917, when Ernest Oppenheimer, a German-born diamond trader, raised £1mn to found the Anglo-American Corporation to mine gold around Johannesburg.

In South African business circles, the news hit home sharply. For decades Anglo dominated corporate life, owning a large part of the Johannesburg Stock Exchange until the end of the Apartheid era, with its tentacles reaching into sugar, wider industry, and even media. The group still owns a wine estate, Vergelegen, in the hills of the Western Cape outside Cape Town. The prospect of the Anglo name vanishing from the bourse has added to a sense of gloom.

“South Africa as a country may feel it’s losing a national champion to an international foe,” said Dawid Heyl, a portfolio manager at Cape Town-based asset manager Ninety One, which holds more than 2 per cent of Anglo American.

BHP will have to overcome a complicated history in South Africa. The Melbourne-based miner demerged its operations in the country in 2015 as South32, in effect reversing its 2001 merger with Billiton. “What we remember is that it dumped coal and then created a small company called South32, which is now marginal,” Mantashe warned.

Gwede Mantashe, South Africa’s mineral resources and energy minister
Gwede Mantashe, South Africa’s mineral resources and energy minister, said that South Africa’s previous experience with BHP was ‘not positive’ © Leon Sadiki/Bloomberg

Rio Tinto, which still owns titanium dioxide miner Richards Bay Minerals in the eastern KwaZulu-Natal region, has also tried to reduce its exposure to risky jurisdictions such as South Africa.

BHP is also battling widespread sentiment that it is trying to get Anglo on the cheap. “It’s something of a cheeky offer,” Heyl said, adding that the terms needed to be improved substantially to get shareholders’ attention.

Many UK investors would be reluctant to keep shares in Anglo’s Kumba Iron Ore and its Amplats platinum unit, which BHP wants to exclude from its takeover offer, because of limits on their South African exposure. This is giving them extra impetus to demand a higher price for Anglo’s other assets to make up for the exit.

Analysts note that Anglo, which is currently cutting thousands of jobs in South Africa to become more profitable, has not been immune from government criticism. “They have stolen our money,” Mantashe said in 2013, after Amplats announced a cut of 400,000 ounces in platinum production, threatening to revoke licenses of the company that remains one of the country’s top private employers.

“The government doesn’t really know what it wants here — if they wanted jobs, it would have mollycoddled Anglo 30 years ago instead of attacking them nonstop,” said Peter Major, director at Mining for Modern Corporate Solutions. “But . . . you’ve got a bunch of inexperienced people who all have different objectives, and few of them have really been in a corporate world. So policy is very mixed here.”

PIC has a mandate to foster the country’s development including a long-term future for mines that provide jobs and skills in a country with a one-third jobless rate.

Companies buying into South Africa’s mining sector “have systematically got rid of the South African assets, so really the question we should be asking our minister is why do these companies keep on getting rid of South African assets”, said Bruce Williamson, a mining analyst with Integral Asset Management.

Ultimately, the government may find its hands tied in trying to stop a deal going ahead, analysts suggested.

“You can bet the government is going to get on a soapbox, but they’re going to find out how little control they have over this,” said Major. “And that’s a product of their own making.”

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