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.
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?
Get the latest news and insights direct to your inbox