By Clara Denina and Melanie Burton

LONDON (Reuters) -Anglo American rejected BHP’s 31.1 billion pound ($39 billion) takeover offer on Friday, saying it significantly undervalued the miner and its future prospects.

BHP, which has until May 22 to make a binding bid, is expected to sweeten its 25.08 pound per share offer to try to clinch a deal that would create the world’s biggest miner of copper, a metal central to the clean energy shift.

Reuters reported on Thursday, citing two sources, that Anglo’s management did not consider the proposal attractive.

“We would need to see more money on the table before we sold our shares,” said Todd Warren, a portfolio manager at Tribeca Investment Partners in Sydney, which holds shares in Anglo.

Anticipation among analysts and investors that BHP would increase its offer were reflected in Anglo’s London-listed shares, which hit their highest level in a year. They were trading about 3.5% higher at 26.50 pounds at 1612 GMT.

News that activist investor Elliott has built a $1 billion position in Anglo, according to a person with knowledge of the stake, also buoyed the stock.

New York-based Elliott locked horns with BHP in 2017, when it built a 5% stake in the Australian miner and pushed for a series of strategic changes in order to return more cash to shareholders.

Anglo said the BHP deal’s complexity created uncertainty and that it was already well-placed to create significant value from assets aligned with the energy transition and other demand trends.

“The BHP proposal is opportunistic and fails to value Anglo American’s prospects,” Anglo Chairman Stuart Chambers said in a statement, adding that it diluted the value upside for Anglo’s shareholders relative to BHP’s.

The mining group started a strategic review of its assets in February in response to a 94% fall in annual profit and a series of writedowns caused by lower commodity demand.

Much of the focus of BHP’s bid has been on copper. A tie-up with Anglo would forge a group accounting for about 10% of global output of the metal, which due to its conductivity and resistance to corrosion is used in everything from electric vehicles and power grids to construction.

Mining has seen a mergers and acquisitions rush as companies seek more exposure to metals needed for the global energy transition, and further consolidation could follow.

A deal, if successful, would be the largest mining takeover globally in 2024 and among the top 10 largest deals for the sector ever, LSEG data shows.

BHP’s shares closed 4.6% lower in Australia after the world’s largest listed mining group on Thursday offered holders of Anglo shares a premium of 31% to Wednesday’s market close.

Investors may also have concerns about the merits of the deal as it faces different regional jurisdictions and some Anglo businesses are lower-margin than BHP’s, analysts said.

“It’s not clear how BHP adds value to the deal if it is required to offer considerably more,” said Brenton Saunders, a portfolio manager at Pendal, of the deal’s complex structure.

The Australian group’s CEO Mike Henry and other BHP executives including Chief Financial Officer Vandita Pant will brief investors on their proposal next week, fund managers said.

SOUTH AFRICA

A condition of BHP’s proposal is that Anglo first distributes to shareholders its stakes in Anglo American Platinum (Amplats) and Kumba Iron Ore, both of which operate in South Africa, where BHP has no assets.

A source familiar with BHP’s thinking said those assets would be better managed locally. BHP jettisoned its smaller assets years ago to focus on higher-volume commodities.

Kumba is hobbled by a failing logistics network while Amplats, which faces lower metal prices and falling demand, said in February it was embarking on a restructuring that could affect about 3,700 jobs.

Any exit by Anglo, which was founded in Johannesburg in 1917 and employs more than 40,000 South Africans, would be a further economic blow to the country, whose miners have been cutting jobs and investment as platinum especially falls out of favour.

South Africa’s Public Investment Corporation (PIC) holds 6.99% of Anglo American, LSEG data shows, and the government is scrutinising BHP’s proposal.

The move comes weeks before a general election in which voter anger about a stagnant economy and high unemployment could cost the long-governing African National Congress its majority.

On Friday, Impala Platinum announced it could cut 3,900 jobs in South Africa due to lower metal prices.

Beyond South Africa, attention turned to potential antitrust hurdles in China, the world’s biggest buyer of copper, and in Japan and India, which take BHP’s steel-making coal.

Glencore was forced to sell its interest in Xstrata’s Las Bambas copper project in 2013 to clear a hurdle set by Chinese regulators for its $35 billion deal.

(Reporting by Clara Denina in London, Melanie Burton in Melbourne, Scott Murdoch in Sydney; additional reporting Archisma Iyer; Writing by Miyoung Kim, Elaine Hardcastle and Alexander Smith; Editing by Sonali Paul, Neil Fullick, Jamie Freed and Catherine Evans)

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