BHP lobs $8.4bn takeover bid for OZ Minerals in a play to expand copper, nickel reach
The Oz Minerals board may have rejected BHP’s opportunistic takeover offer but the global mining giant is still hopeful a friendly tie-up can be arranged.
BHP is settling in for a quiet pursuit of Australian copper major OZ Minerals after its initial $25 a share bid for the company was rejected out of hand by the South Australian miner.
BHP’s $8.4bn offer for OZ Minerals is a fresh salvo in chief executive Mike Henry’s bid to switch the mining giant’s focus to “future facing commodities” after BHP failed to capture Canadian nickel play Noront Resources this year after a heated bidding war with iron ore billionaire Andrew Forrest.
On Monday BHP flexed its balance sheet in a move to expand its copper and nickel portfolio, lobbing a $25 a share bid cash bid for OZ Minerals.
The move, delivered to the OZ Minerals board after the close of the market on Friday, was rejected by its target, with the SA-headquartered copper miner describing the offer as “unsolicited, conditional and non-binding”, despite BHP initially hoping to stitch up a friendly takeover through a scheme of arrangement.
Acquiring OZ Minerals would consolidate SA’s rich copper distinct, adding the Carapateena and Prominent Hill operations to BHP’s Olympic Dam.
It would also give BHP an operating footprint in Brazil after significant work by OZ Minerals to get its South American operations into shape. And it would also provide BHP another strong option in West Australian nickel ahead of OZ Minerals’ decision over whether to build a new mine at its West Musgrave project.
BHP said on Monday it still hopes a friendly tie-up can be arranged, with its bid conditional on OZ Minerals allowing due diligence – and a unanimous recommendation from the board.
BHP chief executive Mike Henry said the offer – a 32 per cent premium to OZ Minerals last traded price of $18.92 – offered “compelling value and certainty for OZ Minerals shareholders in the face of a deteriorating external environment and increased … operational and growth related funding challenges”.
“We are disappointed that the board … has indicated that it is not willing to entertain our compelling offer or provide us with access to due diligence in relation to our proposal,” he said.
OZ Minerals boss Andrew Cole said the BHP offer was opportunistic, given recent falls in the copper market, did not “adequately compensate” shareholders for its operating copper assets, nor for its growth options – including West Musgrave, and its Carapateena block cave expansion plans.
“In addition to the above, OZ Minerals would deliver significant synergies and other benefits to BHP which the board considers are not reflected in the value of BHP’s indicative proposal,” the company said. “These include operational synergies in both South Australia (between Olympic Dam, Carrapateena and Prominent Hill) and in Western Australia (between Nickel West and West Musgrave); and the significant growth and diversification opportunity OZ Minerals represents for BHP’s global copper portfolio.”
OZ Minerals shares were trading as high as $29.75 in January, when the copper price was running high, and as low as $15.82 over the last month amid sharp declines on global commodity markets.
The successful capture of OZ Minerals would add immediate production to BHP’s ageing copper portfolio, which has no clear near-term growth options, as well as medium term growth – both at Prominent Hill and Carapateena, where OZ Minerals is working on expansion plans.
In addition, BHP would get two significant processing plants in SA on either side of its Olympic Dam mine, giving it a dominant position in the state – and a clear way to fill the smelter at Olympic Dam on a long-term basis.
It would also add a substantial nickel project in West Musgrave, another major target for BHP, and offers a quick entry into Brazil’s copper industry – a potential growth story in South America, where BHP’s existing Escondida mine in Chile is facing lower grades and a potentially hostile government intent on raising taxes on miners.
With OZ Minerals board having rejected the initial bid, the question for BHP will be how it captures the attention of OZ Minerals shareholders.
OZ Minerals is seemingly at a position of weakness in the short term. In addition to share price weakness, the company’s last quarterly report showed a cash burn for the company, amid market concern the company could be forced to delay a final investment decision on West Musgrave due to supply chain constraints and rising costs across the industry. The company finished June with $107m in cash, after starting the quarter with $210m and spending $210m on its growth projects.
OZ Minerals increased its debt facilities during the quarter to give it additional head room, and Mr Cole argued that, with Carapateena and other assets generating cash, the company would be well funded for its growth projects.
With the immediate rejection of its first offer, BHP will be hoping enough OZ Minerals shareholders are looking for the certainty of a cash offer to pressure the board to open talks.
But BHP has also shown its willingness to enter a competitive bidding process, as it did in its recent bidding war with Mr Forrest’s Wyloo Metals for Noront.
Neither company moved aggressively to lobby shareholders on Monday, with both believed to be waiting for market reaction to settle – and potential alternative bids to appear – before hitting the circuit to pitch their respective cases to institutional shareholders.
And the global mining giant now has additional options in its war chest. BHP’s move to finally end its dual-listed corporate structure means it will now be far easier to issue scrip as a sweetener for a bid, if shareholders indicate a reluctance to give up future growth story from development projects.
OZ Minerals shares closed up $6.67, or 35 per cent, to $25.59, after hitting an intraday high of $26.25. BHP rose 31c to $39.12.
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