OZ Minerals $1.7bn approval for West Musgrave copper-nickel mine
The target of a $8.4bn BHP takeover offer, OZ Minerals has approved a final investment decision on its West Musgrave copper-nickel mine.
South Australian copper producer OZ Minerals, which rejected a $8.4bn takeover from BHP, has described its assets as being “very sought after” following a big ticket deal to add a fourth mine to its stable, while keeping the door ajar for new buyout offers.
OZ immediately rebuffed BHP’s $25 a share bid on August 8 with speculation mounting since as to when the world’s biggest miner would return with a higher price. However, sources said the mining giant has so far held off any further talks with OZ over bumping up its buyout tilt.
“We remain open to in-bounds. We always are happy to talk to third parties but for us today we are continuing to invest in the company and create value for our stakeholders,” OZ chief executive Andrew Cole told The Australian.
The copper company’s decision on Friday to sanction the $1.7bn copper-nickel West Musgrave project in Western Australia may have just complicated matters further for BHP as it contemplates its next move.
OZ is in talks to sell an equity stake in West Musgrave to a list of car and battery makers who have made contact with the company, potentially strengthening its hand should BHP choose to boost its bid.
“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,” Mr Cole said.
Sanctioning West Musgrave will hand OZ a fourth mine and underscored its value as car and battery makers rush to secure supplies of the raw materials, the Oz boss said.
“It‘s a very exciting future for us and we’re stepping now into the age of decarbonisation and electrification. So that puts these assets into a very sought after place, if you like. I feel like we’re very lucky to have this portfolio and we’re going to keep investing in it.”
OZ already runs the Prominent Hill and Carrapateena copper mines in South Australia along with the Antas mine in northern Brazil.
Asked if he expects BHP to return with a higher bid, Mr Cole said:
“We’re expecting companies to be interested in our portfolio. So the best thing we can do is to create value for our stakeholders and if and when people want to come and talk to us, we’re happy to.”
OZ Minerals agreed a $1.2bn syndicated debt facility for the mine with first supplies targeted for the second half of 2025.
The cost of building the mine jumped by $600m to $1.7bn but the company is touting better economics due to stronger commodity prices and higher initial production, RBC analysts said.
The budget has jumped from an earlier $1.1bn price tag due to an extra $250m for improved design definition, $130m in cost escalation, $110m due to a longer construction period and increased headcount, $80m in higher contingency costs and a $30m rise in processing capacity.
A final feasibility study showed the project’s net present value had lifted to a $1.5bn-$2.2bn range from $1bn previously with an internal rate of return of 18-22 per cent.
Broker RBC said that was due to higher commodity price assumptions, a lower discount rate and higher initial production in the first five years, despite a bigger capital spending burden, increased costs and later start up with first concentrate in the second half of 2025.
“We view the update today as neutral, as while the net present value of the project has increased, it is the result mainly of higher metal prices (and discount rate) as operating and capital costs have actually increased,” RBC analyst Kaan Peker said.
OZ expects $9.8bn in undiscounted cashflow over the 24-year operating life of the mine while processing capacity has been boosted to 13.5 million tonnes a year from 12 million tonnes previously.
Annual production of 35,000 tonnes of nickel and 41,000 tonnes of copper are forecast in the first five years with average output of 28,000 tonnes of nickel and 35,000 tonnes of copper over its operating life.
Costs are expected in the bottom “C1” quartile of US50c a pound with the mine designed to be self-sufficient from an energy perspective, powered by its own on-site renewable energy plant.
Some 1500 people will be hired for construction with 400 ongoing roles for the facility described by OZ as one of the world’s largest, lowest cost and lowest emissions copper-nickel projects.
The South Australian miner rejected out of hand a $8.4bn bid by BHP in August despite the mining giant looking to stitch a deal through a scheme of arrangement.
Battery manufacturers have increasingly been going up the supply chain to secure battery minerals.
Tesla supplier Sichuan Yahua Industrial Group for example investing directly in, and securing an offtake agreement with NT-focused lithium developer Core Lithium last year, along with fellow Chinese company Ganfeng Lithium.
Oz rose 1.7 per cent or 44c to $26.50 handing it a market capitalisation of $8.9bn.
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