Transcript: A mining industry mega-deal

This is an audio transcript of the FT News Briefing podcast episode: ‘A mining industry mega-deal’

Sonja Hutson
Good morning from the Financial Times. Today is Friday, April 26th and this is your FT News Briefing.

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Microsoft and Alphabet beat out Meta this week, and a proposed merger of two big companies could reshape mining. Plus, the European Union is tightening its border and using other countries to do it.

Laura Dubois
But it’s been quite well reported in that case, for example, that this led to terrible human rights abuses.

Sonja Hutson
I’m Sonja Hutson, and here’s the news you need to start your day.

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Microsoft and Alphabet had a great day yesterday. Both companies earnings reports showed their revenues increased by about 15 per cent and beat expectations. Alphabet also announced its first ever dividend. All eyes have been on these big tech companies to see if their investment in artificial intelligence is paying off. Earlier this week, Meta’s share price fell after it announced it would be spending a lot more on AI infrastructure. But investors were happy with Microsoft and Alphabet yesterday and their stocks jumped. The tech giants did report spending more money on AI in the past quarter, but Microsoft had already warned about that back in January, and Alphabet’s operating margin increased from a year ago.

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The big mining company BHP wants to take over its rival Anglo American, and it’s offering £31bn to do it. If approved, the merger would be one of the most significant transformations for the industry in years. Here to talk to me about it is the FT’s Harry Dempsey. Hi, Harry.

Harry Dempsey
Hi.

Sonja Hutson
So walk me through this announcement yesterday from BHP. What’s it looking for with Anglo American?

Harry Dempsey
So the key thing that BHP wants is copper. And copper is absolutely crucial for the world to decarbonise because it’s used in renewable power yet miners are struggling to build new mines. They just say prices aren’t high enough to justify building them and the costs are too high. So the best way to acquire new copper production is to buy your rivals. Second is the mining companies have had a very profitable period, so they have a whole lot of cash now that they can spend on deals. And I think the third thing really is that Anglo American has been underperforming, which means the company looks extremely cheap compared to its industry rivals. And so some shareholders in Anglo American (inaudible) still is being slightly opportunistic.

Sonja Hutson
And what are some of the details of BHP’s proposal?

Harry Dempsey
Yes, it’s a really complex deal that BHP has put on the table. It’d be an all share transaction. So Anglo American shareholders would be entitled to a certain number of shares in BHP. But also BHP has proposed spinning off two of Anglo American’s divisions that are based in South Africa. So that’s its iron ore division and its platinum division. And already, we’ve had the South African mining minister come out in opposition of this. Although he cautions that it’s not the government’s official position yet. So you can already see that this is gonna stir up controversy in South Africa, where Anglo American has over 100 years of history and is essentially being woven into the fabric of the country’s economy.

Sonja Hutson
OK, so some pushback there. What are some of the other challenges that BHP will face in trying to acquire Anglo American?

Harry Dempsey
Well, I think one is whether they’re offering enough money or enough shares and whether the valuation is high enough for Anglo American to contemplate this. I think the second is then whether BHP’s rivals are gonna just sit on their hands when I see them make this big move. So will the likes of Glencore, Rio Tinto, Vale make a rival offer for Anglo American. And then I think thirdly, there’s also antitrust implications because BHP if it acquires Anglo, would become the world’s largest copper company and that’s a big concern of China, which consumes over half of the world’s copper. And we could well see China raise up some antitrust issues which could potentially delay any deal.

Sonja Hutson
So what are BHP’s next steps then?

Harry Dempsey
So BHP needs to make a formal offer by the 22nd of May. But we really need to first see what Anglo American says and whether their board comes out and says, you know, let’s talk about this or whether they pull up the drawbridge.

Sonja Hutson
If this deal does go through, what would it mean for the industry?

Harry Dempsey
So the mining industry has been feeling completely unloved by investors. Investors have been worried about, you know, ESG concerns. You know, mining is fundamentally an environmentally destructive industry. But also, it’s not being trusted for its ability to not overspend and destroy investors’ capital. And so the industry is now going through a period of over a decade where the companies have been very disciplined and they’ve paid a lot of dividends to shareholders. But we’re now entering this new stage where they are looking to do M&A and be more exciting. And I think for investors, this will reignite, I think, a lot of generalist investor interest in a sector which really is sort of fallen to the sidelines.

Sonja Hutson
Harry Dempsey is the FT’s commodities correspondent. Thanks, Harry.

Harry Dempsey
Thanks.

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Sonja Hutson
US economic growth slowed by quite a bit in the first quarter of the year. GDP increased at an annualised rate of 1.6 per cent, according to data out yesterday. That’s way less than expected and about half the rate of the previous quarter. To make matters worse, underlying inflation jumped to 3.7 per cent. That also exceeded forecasts. Traders are now a little less confident that the Federal Reserve will cut interest rates before September.

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In 2023, more than 290,000 people arrived in the European Union without permission to enter or stay. That’s the highest it’s been since 2016. Now the EU has toughened its rules on immigration. It’s a years-long effort that essentially boils down to this. The bloc wants to pay other countries to police its borders. But there are a huge list of problems with that. Here to talk to me about these new rules is the FT’s Laura Dubois. Hey, Laura.

Laura Dubois
Hi.

Sonja Hutson
So tell us a little bit more about the EU’s new rules on migration that were passed earlier this month.

Laura Dubois
Yeah. So earlier this month, the European parliament voted on the asylum and migration pact. It’s a long list of laws that have been negotiated for a very long time — eight years, in fact. And for the first time, EU countries and Parliament agreed on this sort of pretty big compromise. They agreed on toughening the external borders. Many people will now be processed in special centres directly at the external borders of the EU. But it will also allow countries to turn away people who could potentially be sent to a safe third country.

Sonja Hutson
OK, so now people will be processed in centres at the border and they can even be turned away and sent to another country outside the bloc. Are these new rules getting any pushback?

Laura Dubois
Yes. So activists are concerned this could be used to externalise asylum processes and force people to apply for asylum in third countries. And a lot of human rights activists have said that people will now be processed in special centres. These are de facto detention centres because people won’t be able to leave. And that this could lead to more human rights abuses.

Sonja Hutson
And Laura, is there any sort of precedent for outsourcing the problem like this to countries outside the bloc? I mean, have we seen something like this before?

Laura Dubois
Yes. So in fact, for many years EU countries have been trying to outsource the issue of migration. I would say it’s been very difficult because you need to find a country that is willing to take the people back, and then you need to make sure that the people are not in danger there. Otherwise this could violate international law. So they need to be safe of persecution. So 2017, there was an arrangement between Libya and Italy, but that also involved EU money, which was then paid out, for example, to the Libyan coast guard who stopped quite a lot of boats carrying people who were trying to reach Europe, who were then brought back to Libya. But it’s been quite well reported in that case, for example, that this led to terrible human rights abuses as well because the people captured at sea were then locked up in prisons and tortured and enslaved in many cases.

Sonja Hutson
Wow. OK. So there’s definitely a little bit of history here. To what extent has the EU been expanding policies like this in recent years?

Laura Dubois
So this policy has recently really been intensified. Last year, the EU signed a deal with Tunisia in June. Then this year there was another deal with Egypt and then with Mauritania. And it seems like more agreements are in the works. For example, Italy and Albania are working together so that people who want to claim asylum in Italy would have to go to Albania first and stay in the centre there until their claim is successful. This is really kind of similar to the Rwanda-style solution that’s in the UK. And other countries in the EU, for example Denmark, want stricter versions of this, though it’s unclear if it would be possible under EU law.

Sonja Hutson
So there’s obviously some human rights concerns here. But what about the efficacy of these policies? Like are they actually stopping people from coming into the EU?

Laura Dubois
So this is a controversial issue because after the agreement with Turkey, the number of people arriving without a permit in Europe dropped by 50 per cent. So a lot of politicians saw this as a great success. But in other cases it hasn’t worked as well. Maybe also because the amount the EU can offer is quite small compared to remittances that people send home. So a lot of countries’ economies depend on migration through remittances.

Sonja Hutson
Laura Dubois is an EU correspondent for the FT. Thanks, Laura.

Laura Dubois
Thanks.

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Sonja Hutson
Before we go, the US Supreme Court yesterday debated the limits of presidential immunity.

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Sonja Hutson
The case relates to whether former president Donald Trump can be charged with trying to overturn the result of the 2020 election. But any decision by the court would also apply to future presidents.

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Sonja Hutson
We’ll have more analysis in tomorrow’s episode of Swamp Notes.

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You can read more on all these stories at FT.com for free when you click the links in our show notes. This has been your daily FT News Briefing. Make sure you check back next week for the latest business news.

The FT News Briefing is produced by Kasia Broussalian, Fiona Symon, Marc Filippino and me, Sonja Hutson. Our engineer is Monica Lopez. We had help this week from Denise Guerra, Jess Smith, Katya Kumkova, David da Silva, Michael Lello, Peter Barber and Gavin Kallmann. Our executive producer is Topher Forhecz. Cheryl Brumley is the FT’s global head of audio and our theme song is by Metaphor Music.

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