As BHP looks into Anglo American, is Hudbay Minerals next?

BHP (ASX: BHP), the biggest mining company in the world, has made a £31 billion bid for Anglo American (LON: AAL) in what is the biggest deal in the industry in a long time. As a result, Anglo American’s shares jumped by over 10% as investors anticipated a bidding war for the company.

BHP wants Anglo American for its copper business in Chile, the biggest producer in the industry. That is happening because of the soaring copper demand that has pushed its price to the highest point in over two years. 

As I wrote here, the copper industry is going through major challenges because of the aging mines, high capital investments, and regulatory challenges. It takes over a decade from the time a mine is discovered to when it moves to commercial production. 

And some governments are making it difficult for mining companies. In Panama, the government denied First Quantum approval for a large mine that would have employed thousands of residents.

Most recently, in the US, the Biden administration rejected a proposal to build a long road to an important copper mine in Alaska. The road would have cost about $7.5 billion to develop.

However, the reality is that BHP’s acquisition of Anglo American faces challenges. In the first place, there are concerns that regulators will not allow the consolidation of the industry. 

Also, Anglo American is a highly complicated business with hundreds of subsidiaries around the world. It has a large business in South Africa, a country that is seen as being toxic by most mining companies. Indeed, BHP has said that it will only go ahead with the deal AAL divests its South African business.

Hudbay Minerals stock chart

Anglo American’s acquisition will likely lead to more buyouts in the industry as companies seek to gain market share in the copper business. 

In this case, I believe that Hudbay Minerals would be a good acquisition target. Unlike AAL, it is a relatively small company valued at about C$3 billion. Its operations are in the United States, Canada, and Peru.

Further, its operations are in Canada, the United States, and Peru. These are places that are seen as more friendly. In Canada, the firm’s operations are in British Columbia and Manitob, and is the third-biggest copper producer in the country.

Hudbay Mineral’s Constancia project has a mine life of about 18 years while its Snow Flake gold mine has a mine life of 15 years. Copper Mountain has a production life of 21 years. 

Therefore, while the mine life of Constancia is expected to fall in the coming years, it will be offset by that of Copper Mountain, which is growing at a fast pace. The chart below shows its three-year production guidance.

Hudbay Minerals production guidance

The most recent financial results showed that Hudbay Minerals was doing well. Its total revenue rose from $321 million in Q4’22 to over $602 million. It also moved from a loss of $17 million to over $33 million. This trend may continue as the prices of copper, gold, and silver continue rising.

Altogether, BHP’s planned buyout of Anglo American could have a positive impact on smaller companies with quality mines.

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