By Melanie Burton, Scott Murdoch, Anousha Sakoui

MELBOURNE/LONDON (Reuters) -BHP Group bid $38.8 billion for Anglo American (JO:) on Thursday, offering a deal to forge the world's biggest miner and sending its smaller rival's shares 13% higher.

BHP said it will offer Anglo's shareholders 25.08 pounds ($31.39) per share, a premium of 31%, and carve out the London-listed group's iron ore and platinum assets in South Africa, where BHP, the world's largest listed miner, has no activities. 

Shares in Anglo were trading at 24.95 pounds at 0900 GMT.

Anglo, which owns mines in countries including Chile, South Africa, Brazil and Australia, said its board was reviewing BHP's unsolicited, non-binding and highly conditional proposal. Under UK takeover rules, BHP has until May 22 to make a firm offer.

If agreed, a combination would create a copper mining group with around 10% of global output. It could also trigger further transactions in the sector, which has seen a rush of mergers and acquisitions as companies review portfolios to raise exposure to metals deemed critical to the global energy transition.

"This is all about copper," said Ben Cleary, portfolio manager at Tribeca Investment Partners.

"It's a good deal for BHP. Anglo is obviously very much in play now and there's probably room for others to interlope. This is going to set the whole sector on fire," said Cleary, whose firm holds shares in both companies.

The bid comes after Anglo, which had a market value of $37.7 billion at Wednesday's close, began a review of its assets in February in response to a 94% fall in annual profit and a series of writedowns due to a drop in demand for most of its metals.

BHP, best-known for mining iron ore, copper, coking coal, potash and nickel, was valued at about $149 billion.

An Anglo deal would be the second major acquisition by BHP in about a year after its 2023 purchase of copper miner Oz Minerals. Its bid adds to a frenzy of global M&A activity, including gold giant Newmont's $16.8 billion buyout of Australia-based Newcrest Mining (OTC:) late last year.

A takeover of Anglo by BHP would likely be among the 10 biggest-ever mining deals by value and has the potential to delist Anglo from the London market, a fresh blow to an exchange that is struggling to retain big companies and attract IPOs.

But some said BHP would need to offer more to get a deal.

"There is ... almost no way, in our minds, that the premium being offered by BHP is going to be enough to entice Anglo management to transact," said Mark Kelly at advisory firm MKP.     

COPPER          

BHP would gain access to more copper, one of the most sought after metals for decarbonisation, and potash, which are its key strategic commodities, and more coking coal in Australia.

Technological developments such as artificial intelligence and automation, and the energy transition, which includes electric vehicles and renewable energy, have driven up demand prospects for copper cable used to conduct electricity.

Anglo has copper mines in Chile and Peru, where BHP also has operations, and their combined output would amount to around 2.6 million metric tons a year, pushing it well ahead of U.S.-based Freeport-McMoRan (NYSE:) and Chilean state miner Codelco.

Copper prices on the London Metal Exchange have surged 15% this year on demand hopes sparked by encouraging macroeconomic data, U.S. rate cut bets, speculative trading and supply bottlenecks driven by the forced December shutdown of one of the world's largest open-pit copper mines.

Anglo's 2024 copper production guidance is 730,000 to 790,000 tons. BHP is targeting copper production of between 1.7 million and 1.9 million tons for the 12 months ending in June.    

CARVE-OUTS

A condition of BHP's proposal would be that Anglo first distributes its entire stakes in Anglo American Platinum and Kumba to shareholders.

Anglo's stakes in the platinum and iron ore miners are worth $7.44 billion and $5.4 billion respectively, according to LSEG data based on Wednesday's close of trade.

BHP said Anglo's other high quality operations, including its diamond business, would undergo a strategic review after a deal was completed. Anglo owns 85% of diamond giant De Beers. 

Meanwhile, the combined coking coal assets of the two miners, both in Australia's Queensland state, could come under regulatory scrutiny given the deal would merge two of the biggest producers in the global seaborne market. 

($1 = 1.5396 Australian dollars) 

($1 = 0.7989 pounds)