OZ Minerals bids $444m for Avanco to gain Brazilian copper assets

CASH-RICH South Australian miner OZ Minerals is ready to flex its muscles overseas for the first time, extending its copper play into Brazil through a new acquisition.

CASH-RICH South Australian miner OZ Minerals is ready to flex its muscles overseas for the first time, extending its copper play into Brazil through a new acquisition.

OZ Minerals on Tuesday launched a $444 million scrip and cash takeover of WA-based Avanco, which owns a small operating mine, Antas, in Brazil and significant acreage in Carajas, considered globally to be a high-grade copper province.

Avanco is the second largest landholder in Carajas (after Brazilian miner Vale) with its 1800 sq km tenement position.

“It is an exciting day for us,” OZ Minerals managing director Andrew Cole said.

“We have been looking at half a dozen key geological provinces to get into and Carajas is a significant one,” he said.

“We have spent considerable time getting to know the in-country leadership team at Avanco and it’s quite strong in the local communities it works with and most of them have committed to stay with OZ.”

Underground mine at Prominent Hill. Pic: Supplied by OZ Minerals

OZ said it has a pre-bid acceptance deed with Appian, Avanco’s largest shareholder and support from other shareholders representing 30.62 per cent equity.

Avanco’s board has also unanimously recommended shareholders accept the proposal.

The effective offer price of 16.8 cents per share represented a 118 per cent premium to Avanco’s Monday closing price of 7.7 cents.

OZ Minerals’ current assets include the Prominent Hill copper-gold mine 130km southeast of Coober Pedy and is developing the $916 million Carrapateena underground copper-gold mine north of Port Augusta.

The decline at OZ Minerals' Carrapateena project.

Mr Cole said the inclusion of the Brazilian portfolio and the strategies for that market would not interfere with its plans to bring Carrapateena into production as scheduled in late 2019 — or its ambitions for a third SA mine in by 2023.

Additionally, it will add Avanco’s 130 employees and 120 contractors to its books, boosting its growing 1000-strong workforce in SA, including contractors.

Last month the company revealed its best financial result in six years, a net profit for the full year of $231 million on revenues of $1.023 billion.

Its cash balance was $729 million at the end of December and no debt.

Mr Cole defended the company’s strategy to use cash to buy Avanco, saying the strategy fitted with its policy of not “over-leveraging its balance sheet”.

OZ Minerals said it will also work on a new capital management strategy that could include taking on some debt over the coming months as it looks at other acquisition opportunities in Australia and overseas as part of its growth strategy.

“From market analysts we know that the supply of copper is not keeping up with demand so we are quite optimistic about copper price forecasts,” Mr Cole said.

Once the deal is settled, Avanco shareholders will own a little over 7 per cent of OZ.

Avanco managing director Tony Polglase said OZ Minerals strongly supported Avanco’s strategy.

“OZ Minerals’ offer is at a significant premium to recent trading levels and provides an attractive opportunity for Avanco shareholders to both crystallise value today whilst also maintaining base metals exposure through their holding in OZ Minerals,” Mr Polglase said.

OZ Minerals, which last month revealed a new energy strategy, saw shares fall three cents, or 0.33 per cent, at $8.97 in noon trading.