The fight for copper 🥊: BHP 💰💰💰 Anglo

7th May 2024

Sam Volkering

May 07, 2024

Welcome to AI Collision 💥,

a whole bunch of people made a pilgrimmage to see a gigantic spool of copper wire, that's sat on a podium in a god-like way with light shining on it from the heavens, but it's really just a roll of copper wire. It should be comical, humourous, and satire

In today’s collision between AI and our world:

Copper: who’s got it, who wants it and why?
Poor customer service
Trump + F1 = McLaren winning

If that’s enough to get the miners mining, read on…

AI Collision 💥

Have ever been shopping and you walk into a shop where it’s got everything you really want, but you end up leaving with nothing at all?

I’ve had that experience recently when I went to buy a new TV. I walked in, had a look around and there were lots of things I wanted to buy.

Of course I had to make sure the one I ended up with suited my needs. It needed a certain set of specifications and to be a certain size for a start.

I took my time, but I eventually found the perfect one. The downside was that it didn’t have a price on it. It had all the specs and giving it a test run was perfect… but then when they finally went and found the price, it was more than I wanted to spend.

So I kept looking. And then I saw one that looked too good to be true. It had all the specs I wanted, was the perfect size and the price was perfect – a great deal.

Then I ran into another hurdle. There were none in stock. That was ok with me, I didn’t have to have the stock, I’d happily take the one on display.

Nope. They can’t sell me the display model. Well can I buy it and pick it up when it is in stock? Nope. You only get that price for ones in stock.

After about an hour in the shop, I left, empty handed.

Right now BHP, the gigantic Aussie miner, is me in that bloody TV shop. It’s seen a whole bunch of things it wants to buy, it’s even trying its darnedest to buy them, but some aren’t quite the right fit, some are too expensive and some the sales people (i.e. government and competitions regulators) won’t let it buy at all.

BHP is a company with a market cap of £112 billion. It’s massive and does everything from gold mining through to uranium and (the important one for today’s essay) copper mining.

BHP inaugurates a new copper concentrator in Spence which will allow the operation to be extended by 50 years — Source: BHP

Financially this is a robust, diversified, real blue chip company. It’s been that way for the better part of the last 25 years. A key component of BHP’s success since the turn of the century has been thanks to China.

That’s another conversation for another e-letter. The point being BHP is big and when you’re that big to keep adding value for shareholders, it’s not uncommon for companies to go shopping… for other companies.

BHP tried this on before the global financial crisis with Rio Tinto. It was a hostile takeover which ultimately failed. That was going to be worth around £100 billion.

The company tried it again in 2010 when it tried to buy Potash Corp for around $40 billion, but the Canadian government put the kibosh on that one too.

Then in more recent times BHP has made a decision to sell off its coal projects to Whitehaven Coal, and divest its oil and gas projects to a merged entity that is effectively Woodside Petroleum.

In short, while BHP is a massive miner, it’s kind of been getting out of the profitable mining game for a distinct move into the “metals of the future”.

More specifically, it’s got itself in a tizz over trying to get its hands on every great copper asset it can. And this is the reason why it’s taking a $39 billion swipe at absorbing Anglo American into the BHP family.

There’s only one reason the company wants Anglo too…

Copper.

That’s it.

Anglo has some top-notch copper mines. As a friend of mine in the industry said to me, “Quellaveco and Collahuasi are awesome. Maybe the two best in the world.”

BHP has a great copper mine too, but since it decided to remove two major and profitable parts of its business in coal and oil & gas, it’s going full throttle at the copper market.

And fair enough too. Copper is now trading at around $4.5/lb which is up around all-time highs. The demand for copper, which was thought to have been petering out in late 2022 and early 2023, now looks to becoming a situation of the great copper shortage of the late-2020s and 2030s.

Thanks to accelerating demand from renewable and green energy technologies, copper has found itself in a resurgence of late. But what really kicked the market into overdrive and started the concerns of a copper shortage is the skyrocketing demand for copper in high-tech developments in AI and data centres.

Everything from wiring, to cooling to transformers that are needed to help supply power to these gigantic hungry machines require copper.

The price of copper is now up around 27% in the last seven months and is about double the price it was five years ago.

It stands to reason that it isn’t going to head south anytime soon either. As wild as it may sound (considering the price per tonne is near all-time highs already) the idea of $20,000 per tonne of copper isn’t all that wild – at least I don’t think it is.

It does seem like BHP is going to have to pay a premium for Anglo’s copper though. Anglo swiftly rejected BHP’s offer. Rightly so.

I think it’ll create a quasi-bidding war. Except most likely Glencore will swoop in and just buy the mines rather than some convoluted and complex deal that BHP is proposing.

On BHP’s proposal, you can even hear the confusion in Anglo’s response where it said:

The Board has considered the Proposal with its advisers and concluded that the Proposal significantly undervalues Anglo American and its future prospects.
In addition, the Proposal contemplates a structure which the Board believes is highly unattractive for Anglo American’s shareholders, given the uncertainty and complexity inherent in the Proposal, and significant execution risks.

Had BHP just said, “Hey, we want to buy these mines off you,” then maybe things might have got off to a rosier start.

That’s perhaps what Glencore will do, just buy the mines and leave the rest of Anglo for Anglo to figure out.

Even if BHP comes back to the cash register with a little more moolah, there is of course its chances of getting this past the multiple government bodies and regulators around the world.

I don’t think China will be too pleased if BHP had control over another two high-quality copper mines, of which by total capacity, Collahuasi is the third biggest in the world. Plus BHP already owns Escondida in Chile (the world’s biggest by capacity).

Why this is all relevant to AI though is that copper is one of those metals that is crucial to the expansion of high-tech AI data centres and server technology.

As we covered a few weeks back when talking about the way in which AI data centres are cooled, copper is an important metal for the thermal properties of cooling the latest in GPU technology.

Be it BHP getting its gigantic hulking organisation across the line for Anglo’s copper mines, or whether Glencore swoops in with something far more simple and amenable for regulators, it’s a strong sign that the copper market is not cooling off.

In fact, it’s a pretty good sign that copper, its price and copper stocks might be looking higher for longer.

AI gone wild 🤪

I’m going to show my age here, but until about a day ago I didn’t know who FKA Twigs was.

I’d head the name, but I can’t say I had ever heard the music.

She is, by the way, a musician.

I had to go to YouTube to see her videos and even then, I can’t say I’d heard any of them.

But she does seem popular, so, good on her for all that. Not my jam, but for plenty of others it is.

Anyway, the reason I’m talking about FKA Twigs is that while she might be a very good musician, she’s pretty crappy at customer service.

Or at least, that’s my take on it.

You see FKA Twigs was appearing in front of a US Senate subcommittee that was looking at the impact of AI.

FKA Twigs was there to explain how AI needed regulation to ensure that creative arts like music weren’t adversely impacted by AI and that it did pose a genuine threat to their industry.

At the same time she went on to explain that she had created a deepfake version of herself that would speak a range of languages including English, Korean, French and Japanese.

This “AI Twigs” would be able to interact with fans and people on social media so that she would be freed up to focus more on the things she does best, including creating music.

For one, I think it’s great she’s looking at ways to be more productive. But then again, the only reason she’s in front of a US Senate subcommittee is because she has fans.

Therefore, if she has an AI that’s the actual interaction with her fans, then surely the AI is doing her job for her? So it would be a bit rich to argue that AI needed regulation, no?

OK, OK, so maybe AI shouldn’t be allowed to create music. But it can be allowed to represent a human being in machine-to-human communications?

Hmmm.

Look, I’ve seen first hand what AI can do in “deep faking” a person and then sending that out into the world. I did it myself. But c’mon, is it the killer app for AI?

I don’t think so.

I don’t see those 24-hour AI news channels getting traction. I think at the end of the day people do actually want to interact with people. I think that FKA Twigs’ fans probably won’t like the fact they’re speaking with AI – it looks like her, speaks like her, but we all know and they know it’s not her.

AI is a tool, at least for now, and it’s no replacement for actually taking the time to be a human.

Boomers & Busters 💰

AI and AI-related stocks moving and shaking up the markets this week. (All performance data below over the rolling week).

man in black suit jacket and black pants figurine

Boom 📈

Lantern Pharma (NASDAQ:LTRN) up 45%
C3.ai (NYSE:AI) up 8%
Predictive Oncology (NASDAQ:POAI) up 32%

Bust 📉

BigBear.ai (NYSE:BBAI) down 13%
Cyngn (NASDAQ:CYN) down 12%
Brainchip (ASX:BRN) down 8%

From the hive mind 🧠

He’s a self confessed technophobe, and he’s always advocated for investing in things he understands. Which means not investing in things he doesn’t understand. And I’m guessing that when it comes to AI, Buffett isn’t bothered and also really doesn’t understand it.
This is a very interesting read about how some industries embrace change. Of course you would expect the gaming industry to embrace new tech like AI. And it certainly looks like it will form a big part of how we interact with and play games in the future.
He’s the poster child of modern AI, mainly because thanks to OpenAI, the company he founded, we’re now swimming in new AI breakthroughs every other day. So when Sam Altman says what you get now is the “dumb” AI then it says something about the AI that’s coming at us very soon.

Artificial Polltelligence 🗳️

I was watching the Formula 1 Miami Grand Prix over the weekend. And as luck would (and did) have it, McLaren managed to win the race.

But before the weekend kicked off proper, McLaren had a special visitor in their garage to take a look around.

Was it an omen that former President Trump rolled in and McLaren had their first win since the Italian Grand Prix in 2021, and only their second win in the last 12 years…

It was interesting nonetheless to see Trump in a setting that wasn’t a court room. And with the upcoming US presidential elections looming large in 2024, last week I asked who you thought would walk away as the 47th US president.

Here’s the results…