OZ Minerals appears to be keeping its options open with its high-value West Musgrave copper and nickel project as it waits to see whether BHP will return with a bid higher than the quickly rejected $25 per share offer first lobbed in August.
Many in the market, including Shaw & Partners analyst Peter O’Connor expect the mining giant to return with a bid of some $30 per share or more. In a note to clients, O’Connor also suggested the final investment decision for West Musgrave had superior growth potential than projects that BHP – and for that matter, Rio Tinto – have going.
But buried amid pages of detail about the West Musgrave decision was a glimpse at the level of interest that OZ Minerals says it is seeing about strategic tie-ups – and potentially the sale of a stake in the project – with international parties.
No surprises that BHP was interested in an offtake agreement prior to the August bid. But the range of interested parties is wide. Certainly car manufacturers have been active in signing offtake agreements with a number of Australian resources companies.
Ford is the most active, signing a deal with Liontown Resources for the supply of 150,000 dry metric tonnes of lithium spodumene concentrate every year for five years from the Kathleen Valley project in Western Australia. Liontown has also signed similar deals with Tesla and EV batteries manufacturer LG Energy.
Similarly, Syrah Resources saw a spike in its valuation after signing a deal to supply the majority of the natural graphite active anode material from its facility in Louisiana in the US.
Ford, as it happens, has also recently sealed a tie-up with BHP for a multi-year supply of nickel which could start as early as 2025 and could be expanded to involve additional commodities. And copper, in particular, will be in high demand as governments – including in Canberra – turn their minds to incentivising affordable EV cars.
Last week, Energy Minister Chris Bowen opened consultations on a new national electric vehicle strategy, with the main focus on how to encourage uptake, create choice and make the vehicles cheaper. One critical element for car manufacturers will be locking in supply of copper – and quickly. An S&P Global report in July concluded that “potential supply-demand gap is expected to be very large as the transition proceeds”.
“The chronic gap between worldwide copper supply and demand projected to begin in the middle of this decade will have serious consequences across the global economy and will affect the timing of Net-Zero Emissions by 2050,” the report reads.
“The key copper-sourcing countries will remain broadly the same over the projected period, even if their rankings change. Australia, for example, will be increasingly important in the global supply chain.”
So far, OZ Minerals is being coy about possible interested parties. “This is a very valuable project and we’re seeing examples around the globe now of car manufacturers actually paying for equity in the project to secure long term alternative arrangements as an example,” said Andrew Cole, OZ Minerals’ chief executive, late last month.
One way or the other, a decision to lock in a $1.2bn syndicated loan facility for the next 18 months appears to be a smart play. The West Musgrave development will have a capital expenditure bill of some $1.7bn – and the funding agreement gives OZ Minerals the flexibility to sort through the interested parties while starting the project.
It also leaves the door open for another bid from BHP, which could unwind the facility if it is successful in its pursuit of the Rebecca McGrath-chaired mining company. A straight selldown of West Musgrave to a partner now, after all, could have been a poison pill in BHP’s eyes.
OZ Minerals shares closed 0.1 per cent – or 3c – higher on Friday at $25.78.
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