(Bloomberg) -- When Mike Henry took over as chief executive officer of BHP Group in 2020, the world’s biggest mining company had lost its swagger. 

Bruised by a series of painful missteps and a run-in with activist Elliott Investment Management, the Anglo-Australian behemoth was kicking crucial decisions down the road, and increasingly aware that its reliance on fossil-fuel-heavy commodities could start turning investors away. 

Detail-focused and exacting, Henry didn’t fit the stereotype of the hard-charging and charismatic mining executive that the industry so often turned to for its leaders. But he moved quickly and methodically, and within 20 months BHP had announced the most dramatic shakeup since its creation two decades earlier. The company would sell off its oil and gas business and dismantle a dual listing structure that it had outgrown years earlier; it finally greenlit a giant potash mine in Henry’s native Canada after years of wavering.

BHP also started making a tentative return to acquisitions. The industry’s biggest player had spent years on the M&A sidelines, serving penitence for a series of disastrous takeover bids and deals. So Henry started small. When he found himself in a bidding war, the CEO showed he was willing to walk away. Eventually, BHP worked itself up to a $6.4 billion copper takeover last year.

The decisions of the past few years may appear disparate, but each one, according to people familiar with the matter, was always aiming toward the same goal. For years, it’s been an open secret in the mining industry that BHP’s boss was looking for the “Big One” — a mega-deal to supercharge the company’s copper business. 

And now, it’s finally time.

The news this week that BHP proposed a $39 billion deal to partly break up and then acquire Anglo American Plc has set the mining industry alight. The proposal, which Anglo swiftly and forcefully rejected on Friday, would mark the end of one of the world’s oldest mining companies and hand BHP control of some of the best and biggest copper mines at a time when the world is barreling toward a supply shortage. 

BHP, which has a market value of about $140 billion, has made copper a central part of its strategy, betting that supply will struggle to keep pace with demand for metal to build electric vehicles, solar panels and high-voltage cables. But the company’s expansion options at its own assets are  not enough to offset its retreat from fossil fuels, creating pressure to add new mines from outside. The offer is also sparking predictions that it will set off a wider wave of mining M&A, with many of BHP and Anglo’s rivals scouting for their own copper deals. 

But there are huge question marks over whether BHP can pull it off. Henry and his team have come up with a complicated, multistep deal that would ensure BHP only gets the parts of Anglo it actually wants, and minimizes risks for the company. Yet critics are already calling the deal unworkable, and it’s not clear how the CEO’s logic-driven approach will deal with the less predictable real-world realities: even if Anglo can be convinced by an improved bid, BHP will still need to win over regulators in what can be politically charged approval processes. 

And Elliott has once again reared its head. Bloomberg reported Friday that the activist has emerged as one of Anglo’s biggest shareholders, introducing a new unknown to the situation in the form of an old adversary. 

For Henry, 58, this is the culmination of years of strategizing and preparation. When Anglo suffered a series of setbacks that sent its shares plunging and put its management on the back foot, the CEO of BHP was ready to act, according to people familiar with his thinking. The company has been working seriously on the proposal for months with Henry personally leading the charge, and is undeterred by Anglo’s initial rejection. It’s likely to soon come back with an improved proposal, the people said. 

Read: Anglo’s Stumbles Make It Prey for Mining’s Biggest Predator 

“He’s spent a long time, very deliberately putting himself in a position where he can now move quickly and opportunistically," said George Cheveley, a portfolio manager at Ninety One UK Ltd., a shareholder in both companies, and who worked at BHP in the mid-2000s. “He's an incredibly hard working, detailed person.”

In discussions with people who know and work with Henry, “detailed” is a word that comes up a lot. He’s often several steps ahead of others, they say, and employees have learned it’s best to admit ignorance rather than trying to bluff their way through a conversation. Decisions are invariably based on cold logic and hard facts. 

Born in Canada to a navy family, Henry has Japanese heritage and is fluent in the language, having first worked for Mitsubishi Corp. before joining BHP in 2003. Over the next 17 years he worked his way up through the ranks, running trading and coal operations before taking over the miner’s Australian business, where its biggest and most profitable mines are located.

When Henry became CEO he soon took steps to start cleaning up the company’s portfolio of assets and implementing changes that would ultimately make it easier to pursue a deal when the time came. One of the biggest moves was the collapse of the company’s dual listing, which dated back to its creation two decades earlier when Australia’s BHP Ltd. merged with rival Billiton. In announcing the decision to leave London, he emphasized how it would unleash the company's agility to do deals quickly.

While the changes reshaped BHP, it was still stuck with a major long-term problem: Its business was dominated by iron ore and coal and lacked big enough growth options in copper and nickel, the sort of “future facing” commodities that many investors favor for their exposure to the energy transition. 

By early 2022, Henry had beefed up his deal team and issued marching orders — they would start evaluating BHP’s big copper-producing rivals, including Freeport-McMoRan Inc. and Glencore Plc.

For BHP, the prospect of any mega-deal means contending with a history of painful missteps, as the miner has repeatedly fallen short in its most ambitious moves. The company made an audacious $150 billion run at number-two miner Rio Tinto Group that eventually failed, while a $39-billion pursuit of Potash Corp. of Saskatchewan Inc. collapsed when the Canadian government moved against the company. Before Henry took over, BHP's most recent big deal was a hugely expensive foray into shale, which it quickly reversed.

Read: BHP Seeks to Break Mining’s M&A Curse with Thorny Anglo Deal

But Henry also recognized that BHP had missed opportunities in the past and had not been prepared enough or nimble enough to pounce when its rival were wounded. He was determined he would be ready next time. 

Cracks Show

It was around the same time — in the first half of 2022 — that cracks were starting to show at one of BHP’s smaller rivals, Anglo American. A few days after new CEO Duncan Wanblad took the helm, the company announced a major setback at its mines, with production falling and costs rising.

But it was over the course of last year that the pressure really built up. Many of the issues were outside of Anglo’s control — the diamond market imploded, platinum prices collapsed and rail and port problems in South Africa have squeezed exports from the company’s cash-cow iron ore business. Anglo is the only major miner with big platinum and diamond businesses and is particularly exposed to South Africa. Its complicated structure — with majority shareholdings in two large, listed South African mining companies — and its unusual product mix have been part of the reason it hasn’t been successfully targeted previously. 

The biggest disappointment, however, came in December, when the London-based company announced a big and surprising cut to its copper production, sending its shares plunging. Anglo’s management has been under increasing pressure since then — it started a review of its businesses and faced calls from some analysts and investors to pare back expansion plans or even sell some assets. 

Wanblad, a 57-year-old South African, is also a long-time employee, and like his counterpart at BHP is described by employees as deeply analytical.

People close to Henry say he’s been confused by Anglo’s failure to take tough decisions to address its problems. BHP had kept a file on Anglo for years, but the mounting missteps in recent months spurred the company to start looking at a potential deal more seriously, eventually culminating in the proposal first reported by Bloomberg this week.

Separate First

BHP has outlined a deal in which it wants Anglo to first separate out its South African platinum and iron ore businesses — spinning them off to shareholders — before proceeding with an all-share takeover. At last Tuesday’s closing prices, the share ratio would value Anglo at £31.1 billion, according to BHP’s calculations.

It’s easy to see Henry’s focus on detail and logic in the proposal. BHP would only go ahead with the takeover if Anglo completes its exit from the South African companies, simplifying its structure and reducing exposure to a country where miners have long contended with power shortages, logistics disruptions and fractious labor relations. The company has also flagged its intention to put assets including De Beers, the iconic diamond business, under strategic review — generally business speak for “up for sale.” 

Anglo has pushed back hard on the design of the deal, arguing that it creates uncertainty and “significant execution risks,” in addition to its assessment that the offer itself undervalues the company. Spinning off the South African businesses would take time, leaving Anglo exposed to changes in commodity prices and other factors— potentially for months — despite already having agreed to a takeover price. 

And there are other uncertainties. The deal, which would give BHP roughly 10% of global copper mine output, is likely to raise antitrust red flags, especially in its biggest customer China. 

Read: China Could Hinder BHP’s Bid to Become Copper’s Top Producer

Some South African politicians have already reacted negatively to the announcement, raising questions about whether BHP has a strategy to ensure a deal doesn’t turn into a political lightning rod, especially in an election year. While Anglo is listed and headquartered in London, it’s a deeply South African company ingrained with the country’s history, politics and economy.

When the African mining industry gathered in Cape Town in February, Anglo boss Wanblad was one of the keynote speakers, a few hours after President Cyril Ramaphosa took the stage. Nobody questioned the absence of Henry or other senior BHP executives — unlike Anglo, the company doesn't operate any pits or shafts in Africa. But in hindsight, Henry’s absence seems like a curiously missed opportunity to meet with key politicians and other influential figures.

“There's a lot of issues and obstacles to overcome, so we'll have to see,’’ said Professor Frederik Anseel, the Interim Dean at UNSW Business School —  one of Australia's leading business universities. “South African government, a bit of competitor analysis, China involvement. Clearly these are hurdles BHP will need to take and I think the first reactions from South Africa were not super positive.’’ 

Henry will also need to convince his own investors that Anglo’s vulnerability presents a can’t-miss opportunity to snap up valuable copper mines. 

And while he’s successfully transformed the company, not all of his strategic moves have paid off. Henry initially championed nickel — a metal used to make electric vehicle batteries — as a parallel commodity to copper. The company looked to expand its existing operations and went on the hunt for deals, but a glut of supply from Indonesia has sent prices plunging, forcing BHP to take a $2.5 billion writedown on its flagship mine and consider shutting it altogether. 

But the foray also holds some insight into Henry’s strategy. When its offer for a Canadian nickel project turned into a bidding war, BHP ended up walking away. Company insiders point to this as a differentiator from his predecessors:  The ego-driven culture of the past is gone, they say, and BHP would rather lose out on a deal than risk destroying value. 

What happens now? Under UK takeover law BHP has until May 22 to either announce a firm intention to make an offer or walk away, and the company is expected to return soon with an improved proposal in the hopes of winning over Anglo’s board and management. Analysts at Jefferies and Co. have suggested the per-share value for the whole company will need to be at least £28 for Anglo to take it seriously and enter talks. 

And the arrival of Elliott on the scene presents a potential wild card. The activist hedge fund led by Paul Singer amassed its 2.5% holding in Anglo over recent months, Bloomberg reported on Friday. The firm is known for stepping in to beaten-down stocks and then pushing companies to take measures ranging from share buybacks to outright sales of the business. 

Many in the industry believe the BHP offer has fired the gun on a new wave of restructuring for the global mining industry — and one that is almost certain to involve Anglo, whether or not BHP succeeds. 

“For a while we’ve felt that within mining there’s probably some consolidation due. While nobody wants to be the one who is consolidated, Anglo are in a position now where they have to make the best of it,” said Chevely, the portfolio manager at Ninety One. “In a year’s time, I don’t think Anglo is sat there as the same company they are today.”

--With assistance from William Clowes, Jack Farchy and Mark Burton.

©2024 Bloomberg L.P.