SA is a deeply unattractive mining destination despite still having some of the best mineral reserves in the world.

For 15 years regulation has been a mess, with constant policy shifts, proposed and then withdrawn legislative amendments, court cases between industry and the ministry, and a department that seems hostile to large and established mining interests.

Combine that with the crisis of electricity availability and more recent but alarming deterioration in rail and port performance and it is no surprise that mining investment has been on a declining trend since 2009.

So, it is also no surprise that BHP’s bid for Anglo American is contrived to cut out most of Anglo’s SA business.

Anglo must unbundle its shares in Kumba Iron Ore (it holds 69.7%) and its 79.2% of Anglo American Platinum (Amplats) as part of the deal, leaving a rather short list of SA assets going to BHP (De Beers’ SA interests and 40% of Samancor).

An Anglo shareholder of today would end up with a clutch of Kumba, Amplats and BHP shares instead of their tidier Anglo shares, but notionally it will be worth a fair bit more than Anglo shares had been before the offer.

The problem is that the BHP offer structure has some value-destructive elements. The unbundling of Kumba and Amplats will create a share overhang. It will leave Anglo’s global shareholders with stakes in JSE-listed companies that they don’t necessarily want. Their share prices fell sharply when the offer was made public.

BHP’s share price has also been weaker, reflecting the common assumption that an acquirer tends to overpay. The only clear winner here has been the Anglo share price itself, but shareholders must focus on the value of the shares they will end up with if a deal goes ahead.

By my calculations, that clutch of shares was worth R749bn on April 19, when the BHP offer was tabled to the Anglo board. But on Friday it was worth R696bn, because of the depreciation of Kumba, Amplats and BHP share prices. That is still more than the R630bn that Anglo was valued at on April 19, but not nearly as much as when the offer was made.

Seen that way, it is no surprise that the Anglo board has rejected the offer as undervaluing the company. What happens next could be high drama.

Anglo shareholders will be hoping for a counter-offer from other bidders — Rio Tinto or Glencore are thought most likely — or a revised offer from BHP. An offer which excludes the unbundling of Kumba and Amplats would be more attractive, and the recent recovery of the shares of the two unloved assets suggests the market is expecting such a move.

Glencore may be more comfortable with SA risk, given it has coal, vanadium and chrome interests in the country. Rio Tinto’s interests are narrower in the form of Richards Bay Minerals, from which it bought out BHP in 2012.

BHP will of course have thought through the game theory and will have a revised offer plan, though the jettisoning of the two SA subsidiaries seems non-negotiable. There is also real risk that none of that happens, and Anglo’s go-alone strategy continues, with its share price succumbing to gravity.

The Anglo market capitalisation on Friday was R757bn, indicating that Anglo shareholders believe they are going to be getting some significant improvements on BHP’s opening salvo.

We have yet to hear from Anglo’s biggest shareholders, and I expect some commentary will influence BHP’s next move. BlackRock is largest with 8.4% followed by the Public Investment Corporation with 7.1%. There is a long tail of smaller shareholders, making it difficult for BHP, or any other acquirer, to systematically convince shareholders.

As is typical in a game of this nature, both are likely to signal their dissatisfaction with the offer on the table. We will then go through the drama of a revised offer, promises that it is the full and final offer and threats to walk away. Eventually shareholders will end up with a vote. The timetable will be according to UK takeover rules, which give BHP a month to announce a firm intention to make an offer or to withdraw. That gives much time for public announcements that will drive sentiment.

SA’s policy uncertainty could also play a role. Legislation expressly allows for a change of control of listed mining companies without the consent of the mineral resources & energy minister, so that is a limited source of risk — even though the minister has been quick to take to the airwaves to say he wouldn’t support the deal if he was Anglo. The Competition Commission is somewhat less predictable. Given there is almost no domestic overlap in the two companies, it is hard to see that this will be an obstacle, though the commission has become notorious for the conditions it imposes on transactions, motivated by public interest considerations rather than competition economics.

The proposed transaction is the most material to have hit the SA corporate sector for some time. Unfortunately, it also reflects how out of favour SA assets have become to the global majors. A smooth regulatory process will help repair that image.

• Stuart Theobald is chair of research-led consultancy Krutham (formerly Intellidex).
  This article first appeared in Business Day.