OZ Minerals lays out its defence to BHP takeover bid
OZ Minerals says shareholders should look past its ‘soft’ half-year result and consider the company’s growth platform.
OZ Minerals boss Andrew Cole says the company’s major shareholders have “unanimously” backed its decision to reject BHP’s $25 a share takeover offer, and dismissed suggestions the company may need to raise cash to fund its growth projects.
The Australian copper major marked out its defensive lines on Friday as it looks to fend off takeover pressure from BHP, telling shareholders to look past a “soft” half year result and consider the company’s future growth prospects.
OZ said on Friday it will pay an 8c a share interim dividend after booking a $109m profit in a “challenging” first half of the year. Last year the company paid an 8c share interim dividend and added an 8c a share special dividend, taking its total shareholder return to 16c.
OZ Minerals is the target of an $8.3bn takeover offer from BHP, and has argued the mining giant took advantage of a moment of temporary weakness in pitching its $25 a share takeover bid, which was rejected out of hand by the OZ Minerals board.
But chief executive Andrew Cole told shareholders the company had a “clear path” to doubling its copper production amid a rising gap between copper output and likely demand, saying the company was on the cusp of realising the benefits of years of hard work.
“Our next growth phase offers options to more than double copper equivalent production from circa 140,000 tonnes at present to over 340,000 tonnes per year,” he said.
Speaking to reporters after delivering the half-year result, Mr Cole dismissed concerns OZ Minerals could struggle to fund its growth projects, saying expansions of its existing South Australian and Brazilian mines could be funding from cash flow, and the company was fielding regular offers to partner in the development of its West Musgrave nickel and copper project in WA.
A pre-feasibility study into West Musgrave delivered in December 2020 tipped capital costs at about $1.1bn, but recent cost inflation in the mining sector could push that figure up when OZ Minerals makes its final investment decision sometime later this year.
BHP chief executive Mike Henry made a point of noting the falling copper price and “increased OZ Minerals operational and growth related funding challenges” when expressing his disappointment BHP’s takeover bid had been rejected in early August.
But Mr Cole dismissed those suggestions on Friday, saying the company’s board had the backing of major shareholders for both its rejection of BHP and the company’s growth strategy.
“I have since met with nearly all of our major shareholders, and it has been unanimous and our shareholders have supported us in the rejection of that bid and they are supporting us in that growth strategy that we‘ve mapped out for a long time now,” he said.
“All of our brownfield expansion in the company… and our ability to continue to pay sustainable dividends to our shareholders, can be funded from operating cash flow at consensus copper prices.”
Mr Cole said the company was still running the numbers over the best way to fund the development of West Musgrave, but said OZ Minerals had a range of options in front of it.
“We have a very strong balance sheet, a conservative gearing level, and there is no shortage of companies and funders that want to get involved in great project,” he said.
“We have been inundated with inbound calls to get involved in West Musgrave, to be part of the project and to secure offtake from the project. Good long life nickel deposits are very hard to find, and this is probably one of the world‘s largest, longest life, and lowest cost nickel projects.”
The company booked revenue of $909m for the first half, down $77.5m from the first half of 2021, and earnings before interest, tax, depreciation and amortisation of $358.3m, down 36 per cent.
While OZ Minerals half-year results took a hit from the spread of Covid-19 through its workforce in the first half of 2022, Mr Cole said the company believed its was over the worst of the pandemic at its two major operating mines.
“We are now regaining operating momentum at both Prominent Hill and Carrapateena with improvement plans gaining traction supported by considerably lower absenteeism, resulting in fewer shift losses and improved equipment availability,” he said.
“The quality and high margin nature of our assets provided a healthy operating margin of 40% and robust operating cashflow during the half.”
OZ Minerals shares closed down 20c, or 0.8 per cent on Friday, at $25.99.