M&A

Oz Minerals rejects BHP's lowball $8.3bn bid to grow battery metal exposure

Mon 08 Aug 22, 11:26am (AEDT)
BHP Iron Ore Train
Source: iStock

Key Points

  • BHP wants to take out Oz Minerals for $25 a share, a 32.1% premium to its last close
  • Oz Minerals rejected the takeover offer, saying its not in the best interest of shareholders

BHP (ASX: BHP) is on a quest to increase its exposure to ‘future facing commodities’, hoping to capitalise on a discounted Oz Minerals (ASX: OZL) with a $25 per share takeover offer worth $8.3bn for the largest ASX-listed copper player. 

Even at a 32.1% premium to Oz Minerals’ last close, the board considered the offer as not in the best interests of shareholders and ‘significantly undervalues’ the copper miner.

What's interesting is that Oz Minerals shares rallied as much as 39% to $26.25 as the market opened - even though it rejected the bid.

“We have a unique set of copper and nickel assets, all with strong long-term growth potential in quality locations. We are mining minerals that are in strong demand particularly for the global electrification and decarbonisation thematic,” commented CEO Andrew Cole.

As of last Friday, Oz Minerals shares were down -34% year-to-date as earnings are squeezed between a slump in copper prices, labour shortages and industry-wide cost inflation.

Copper prices are down around -20.5% year-to-date amid rising recession fears and slowing global economic growth, especially in China.

Oz Minerals and copper price chart
Oz Minerals and copper price (Source: TradingView)

Does the rejection make sense?

Copper has a compelling long-term outlook, underpinned by "increasing geological scarcity, global electrification and accelerating decarbonisation, to which Oz Minerals is highly leveraged," noted the Board.

Oz Minerals was trading around the $25 level around 5 months ago, so it makes sense for the company to demand more than a mediocre offer.

Still, at least in the near-term, miners are suffering from major cost escalations and an increased cost of capital at a time when commodity prices are declining.

At the same time, Oz Minerals will need to make some tough funding decisions across its growth projects that include West Musgrave, the Carrapatenna Block Cave and the Prominent Hill Extension.

  • Carrapatenna block cave works over 2022-25 is expected to cost $710m to enable a significant increase in mine life and production

  • Study work for the Prominent Hill extension is advanced and an updated is expected in the September quarter 2022

  • West Musgrave has a final investment decision scheduled for the second half. A pre-feasibility study in December 2020 expects the project to cost at least $1.1bn

At the end of the June quarter, Oz Minerals had $82m cash and a corporate debt facility limit of $700m. So where is the additional capital going to come?

Will it be cashflow? More debt? A capital raise?

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Written By

Kerry Sun

Content Strategist

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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