Timing key to BHP’s $8.4bn Oz Minerals play

A worker at OZ Minerals' Prominent Hill mine in Far North South Australia.

BHP’s $8bn-plus bid for Oz Minerals is entirely and indeed extremely opportunistic.

Of course it is: company boards don’t lay out that sort of money just to play Santa Claus in August.

Nor do they make their ‘best and final’ offer upfront.

So, BHP went into this, clearly not only prepared to pay more, but indeed happy to pay more, if that would guarantee 100 per cent success.

Not ecstatically over-the-moon happy, but certainly happy-contented.

The core and to some extent only question is whether there is a meeting place –a price that BHP remains prepared/happy to pay, and which if not exactly irresistible to the OZMin board, is at least acceptable.

The BHP bid is opportunistic on at least three levels: the long-term strategic, the medium-term operational, and in its timing.

BHP has got out of oil and gas; it also wants to get out of coal – certainly the evil C02-emitting energy coal; although it’s not so sure about the ‘don’t mention the CO2’ met coal.

You couldn’t ask for a more cynical expression of ‘trying to have it both ways’. BHP wants to exit CO2-emitting energy coal, but at the same time feed the world’s biggest emitter, China, more and more met coal and iron ore to boost its emissions even further.

Anyway, exiting wicked fossil fuels, oil, gas and coal, would be two out of its fabled four pillars gone, leaving only copper and of course the mega one iron ore.

Yes, it seems to finally be reaching the end of the tortuous two-decade long process of getting a new fertiliser pillar.

A worker at OZ Minerals' Prominent Hill mine in Far North South Australia.

But if it wants to stay in business far less grow it needs more.

Strategically, if not necessarily wisely, it has committed to minerals associated with the (stupid part of the) world’s mad, bad and dangerous pursuit of renewables: lithium – for batteries – obviously; and now OzMin’s nickel and copper.

The shorter-term, more real-world, operational bit is that nickel and copper are also needed in a conventional world economy.

And what OzMin has would fit very neatly with what BHP has; there are very real synergies and scaling up to be had.

As the OzMin rejection took pains to point out, and which the minimalist BHP statement not surprisingly did not reference.

Then there’s the timing.

BHP says its offer price is 30 and 40 per cent above recent prices for OzMin on the stock exchange.

OzMin says its share price has traded higher than the offer for five of the last 12 months.

Just as BHP didn’t want to point out that as recently as earlier this year OzMin was trading above its $25 offer; so OzMin didn’t rush to remind its shareholders that for most of the last ten years it had traded at less than half the $25.

It’s all about the copper price.

As the copper price more than doubled from its immediate post-Covid low in March 2020 – and even nearly doubled from its pre-Covid price of late-2019 – so went the OzMin share price.

From $6.30 in March 2020 to over $25 by May 2021.

Then, as the copper price stayed high into 2022, so also did the OzMin share price.

Then as the copper price fell sharply, dropping by nearly one-third, so followed the OzMin share price, dropping from $25 to around $16.

Now the copper price has started to stir; and that clearly stirred BHP into action.

Better to start that ‘sweet spot’ price negotiation from an OzMin share price of $18 rather than $25.

But OzMin will argue and not unreasonably; no, the real starting point of the negotiation is $25.

But they need to be careful not to overplay their hand lest a global recession sends the copper price really plunging.