BHP won’t pay to much, but will it offer too little?
BHP has already signalled it has a top price in mind when it makes an offer and target Oz Minerals undoubtedly wants offer around the stock’s January peak.
Heading into the second day of BHP’s move on OZ Minerals, there is little doubt the boards of both companies have a firm figure in mind. The size of the gap between the two is the key question.
BHP’s willingness to walk away from its battle with Andrew Forrest for control of Canadian nickel player Noront Resources is a clear signal it enters any on-market play with a hard cut-off already defined.
The figure in mind at OZ is undoubtedly around the $29.75 share price peak the company hit in January. BHP’s figure will largely depend on its other options if a middle ground can’t be reached. Tucked away in a secure folder somewhere, BHP chief development officer Johan van Jaarsveld has a long list of potential opportunities for BHP to expand its portfolio of future facing commodities.
BHP has already acted on some, albeit at a relatively early stage – its joint venture with Australia’s Encounter Resources in the Northern Territory, or its $C100m investment in Filo Mining over South American projects.
But there’s no doubt there are bigger targets on Mr van Jaarsveld’s list, and the share price weakness at OZ Minerals – linked partly to its cash burn in the June quarter – pushed the company to the top of the list.
BHP is betting it can convince OZ Minerals shareholders they should take the certainty of a cash offer over the possibility that OZ will need to return to the market – or take on risky levels of debt – to make its expansion plans become reality. OZ Minerals, in turn, will be urging shareholders to look beyond the short-term copper price – and its spending on growth projects – to the cash harvest that lies ahead.
Both have every reason to be patient – but BHP has a list of options. Does OZ Minerals have a list of alternative suitors?