OZ Minerals will assess a potential third SA copper project, sending its owner’s stock through the roof
OZ Minerals has struck a deal for first dibs on a major SA copper deposit, sending shares in its owner more than 100 per cent higher.
OZ Minerals has struck an option agreement with Havilah Resources to acquire its Kalkaroo copper project in South Australia’s east for as much as $405m, sending shares in the junior explorer through the roof.
OZ, which operates the Prominent Hill and Carrapateena cooper and gold operations in central SA, will have 18 months to assess the Kalkaroo project, at which time it can elect to pay $205m to buy it.
There is also a potential deferred payment of $65m contingent on a 30 per cent increase in the measured and indicated resource at Kalkaroo, and a copper price-linked payment in each year of production up to a maximum of $135m.
Shares in Havilah Resources, whose shareholders will have to sign off on the deal, traded as high as 45c before settling back to be trading at 30.5c, up 85 per cent, by early afternoon on Tuesday.
The Havilah board has unanimously recommended that shareholders vote in favour of the deal.
READ MORE:BMWs, fries and other hidden gems paying off for Lanyon
Havilah has been exploring at Kalkaroo for more than 15 years, and in mid-2019 released a prefeasibility study into the project which envisaged a 13 year mine life producing 30,000 tonnes of copper and 72,000 ounces of gold per year.
OZ will now spend up to $76m over the next 18 months, including a $1m per month payment to Havilah, “to undertake studies and for exploration activities at the Kalkaroo project and on alliance activities’’.
“OZ Minerals will have certain rights to accelerate exploration in discoveries of copper dominant mineralisation in the alliance area and to participate in developing any related projects,’’ OZ said in a statement to the ASX.
The company’s managing director Andrew Cole said the alliance would give OZ the chance to “apply our experience of looking at projects in a different way to unlock value during the study phase’’.
“The agreement provides a low-cost option and flexibility to study the Kalkaroo project, while
retaining the optionality to acquire 100 per cent of the project for a fixed acquisition price together with any deferred contingent consideration,’’ Mr Cole said.
“If the study can demonstrate value creation for our stakeholders the fixed component of the acquisition price ensures that OZ Minerals captures additional value identified through the study and provides Havilah shareholders with price certainty, while the deferred contingent consideration rewards Havilah for future value enhancing milestones.
“During the study period the team will focus on opportunities to identify additional value by assessing a range of modern mining opportunities, innovation, processing improvements and local infrastructure that reduce project costs and improve productivity.’’
A meeting of Havilah shareholders to vote on the deal is expected to be held in August.
Royal Bank of Canada analyst Kaan Peker said the amount on offer from OZ appears to be “a steep price for a development project”.
“We also see questions around the rationale. The company already had a number of high quality development project on the go. We think the company would be better positioned with the successful delivery of these (West Musgrave, Carrapateena bottlenecking and expansion and Prominent Hill expansion),” he says in a note to clients.
OZ shares were 1.7 per cent higher at $21.83.
To join the conversation, please log in. Don't have an account? Register
Join the conversation, you are commenting as Logout