(Bloomberg) -- BHP Group Ltd.’s proposal for Anglo American Plc to spin off platinum and iron ore units before a takeover would likely require approval from South African regulators, according to a government agency.

Under BHP’s offer, Anglo would need to first divest its controlling interests in Kumba Iron Ore Ltd. and Anglo American Platinum Ltd., both of which are listed in Johannesburg and operate assets in South Africa. Anglo rejected the initial $39 billion proposal from the Australian mining giant last week.

Analysts have pointed to South Africa as one of the biggest potential hurdles to a deal, even if Anglo’s board can be won over. Founded in 1917 by Ernest Oppenheimer, Anglo has long ties to South Africa and was built on the back of the country’s gold mines. The proposed spinoffs highlight the fragile state of the country’s critical mining industry, as the ruling African National Congress struggles to bolster its appeal before elections next month. 

Even before BHP’s proposal, Anglo’s platinum subsidiary was weighing thousands of job cuts in a country with one of the world’s highest unemployment rates. The ANC’s national chairman has signaled his opposition to BHP’s proposed takeover.

Even though BHP doesn’t want to buy Kumba and Amplats, South Africa could have an important role to play if an eventual deal is structured in the manner originally outlined. The country’s Competition Commission not only evaluates antitrust impacts but also “public interest” factors, including how a proposed acquisition will affect employment levels and historically disadvantaged people.

“There are numerous and current merger reviews in which the agency has imposed stringent conditions on the basis of the transactions’ effect on the public interest criteria,” said John Oxenham, Johannesburg-based managing partner at Primerio, a law firm that specializes in competition cases.

BHP is considering making an improved proposal for London-listed Anglo, Bloomberg reported April 27, citing people familiar with the matter. The main prize for BHP is Anglo’s South American copper operations, while the non-South African iron ore business and coking coal mines in Australia would also fit well with its existing operations.

If Anglo shareholders accept an improved offer with the same conditions, spinning off Kumba and Amplats is “very likely to meet the mandatory thresholds” that would require approval from South Africa’s regulatory authorities, Competition Commission spokesman Siyabulela Makunga said in an emailed response to questions. The agency assesses each deal “based on its own merits” in accordance with the law, he said.

Read More: BHP’s $39 Billion Bid for Anglo American Was Years in the Making

South Africa Mines Minister Gwede Mantashe has signaled his opposition to the takeover, telling Bloomberg last week that he “wouldn’t support” the proposal. “I don’t think Anglo will agree to that,” said Mantashe, who also chairs the ANC.

The country’s state pension fund – the Public Investment Corp. – is also Anglo’s second-largest shareholder, controlling an 8.4% stake, according to data compiled by Bloomberg.  

--With assistance from Antony Sguazzin.

(Updated with information on Competition Commission from third paragraph)

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