What global companies really think of South Africa

Investment expert Piet Viljoen said BHP Group’s takeover bid for Anglo American shows that South Africa is not an attractive investment destination for global companies.

Viljoen is a portfolio manager and executive director at Merchant West Investments and one of South Africa’s best-known investment specialists.

He discussed BHP Group’s unsolicited all-share merger proposal to rival Anglo American with Biznews founder Alec Hogg.

The deal appeared tailored to expand BHP’s copper footprint, highlighting how the metal has become a priority for the mining sector.

Anglo highlighted that BHP’s proposal was conditional on the company first splitting off its South African platinum and iron ore units.

Anglo American’s board rejected BHP’s bid for the company, saying the offer undervalues the miner and is unattractive to shareholders.

Anglo American chairman Stuart Chambers said the BHP proposal is opportunistic and fails to value their prospects.

It will also significantly dilute the relative value upside participation of Anglo American’s shareholders relative to BHP’s shareholders.

Apart from the significance of this offer, another thing that stood out was BHP’s insistence that Anglo American first unbundle its major South African assets.

That indicated that Australian-based BHP Group did not want anything to do with Kumba Iron Ore and Anglo Platinum – two South African mining assets.

Viljoen said BHP Group’s insistence on unbundling some South African assets before a deal can be done sends a strong signal about the country.

“A foreign entity doesn’t want to invest in a country where it has to give up 30% of the economic proceeds to a BEE partner for nothing in return,” he said.

He highlighted that black economic empowerment (BEE) makes it very tough to do business in South Africa. “It makes us very uncompetitive,” he said.

Viljoen said considering the challenges of doing business in South Africa, it is understandable that BHP wants nothing to do with Kumba Iron Ore and Anglo Platinum.

He added that apart from issues like BEE, logistics constraints are also hurting the mining sector.

These constraints include an unreliable electricity supply and Transnet’s poor state, making it difficult for mining companies to get their products to ports and ship them globally.

“Kumba Iron Ore is a good business. However, it cannot deliver its products to global markets because South Africa’s infrastructure collapse,” Viljoen said.