Let the games begin for the BHP-OZL Olympiad

Company News

by Glenn Dyer

After BHP (ASX:BHP) lobbed its $8.3 billion all-cash bid for OZ Minerals (ASX:OZL) on Monday morning, the future for the targeted company is clear – it will not be allowed to remain independent.

If BHP doesn’t win control with a higher offer, someone else will emerge to bid and win.

BHP’s $25 a share bid represents a premium of 32.1% compared to the last closing price of OZ Minerals shares last Friday.

Punters pushed the OZL price above $25 to $25.59 in the hope a counter offer will emerge. Time will tell.

The market was less enthused about the bHP share price which ended up 0.8% on the day at $39.12.

According to OZ Minerals, BHP has accumulated an interest in OZ Minerals through derivative instruments, amounting to a holding of less than 5%. That is a low-cost takeover tactic from the standard bid play book. BHP has not wasted money buying a starting stake in OZL (which would have cost just over $300 million).

After considering the offer, the OZ Minerals board naturally decided the offer undervalues it and rejected the offer.

OZ Minerals pointed out the offer represents a premium of just 13.1% to the volume weighted average price of its shares for the last six months.

While that might be the case, the copper price has fallen sharply in the same time and OZ’s performance has been hit by mining problems at its Carapateena mine in South Australia and by wet weather which hit output in the June half year.

OZ Minerals pointed out how BHP is seeking to exploit these problems.

The OZ board said the Indicative Proposal was “highly opportunistic” and has come at a time when the LME copper price and OZ Minerals share price have fallen from their recent peaks in March and January respectively

Those problems with weather have forced OZ to downgrade its guidance for the year to December which is something OZ can’t do anything about, but BHP will try and exploit.

OZ Minerals defence is on safer ground when it pointed out that buying it would deliver significant synergies and other benefits which “are not reflected in the value of BHP’s Indicative Proposal.”

These include operational synergies in both South Australia (between Olympic Dam, Carrapateena and Prominent Hill mines and in Western Australia (between BHP’s Nickel West and West Musgrave – the $1.1 billion proposed mine from OZ which may not happen because of a shortage of labour and rising costs of key inputs).

OZ Minerals board says its shares have consistently traded above the proposed offer price for the equivalent of more than five of the last 12 months

BHP CEO Mike Henry said the proposal represented compelling value and certainty for OZ Minerals shareholders in the face of a deteriorating external environment and increased OZL operational and growth-related funding challenges.

“We are disappointed that the Board of OZL has indicated that it is not willing to entertain our offer or provide us with access to due diligence in relation to our proposal,” he said.

These are all negotiating points and nothing else.

If BHP really wants OZ Minerals it will offer more money.

Rivals could emerge and the OZ share price seems to be reflecting that optimism among hedge funds and punters.

Rio Tinto (ASX:RIO) is a name on every lip, as are the likes of Mineral Resources (ASX:MIN), IGO (ASX:IGO), Northern Star (ASX:NST), Newcrest (ASX:NCM) and Evolution (ASX:EVN).

That’s just a parade of stockmarket codes from punters but OZ Minerals has high class mines and high-class prospects in Australia (and Brazil where a new mine is just coming on stream) and a big position in one of the key battery and renewable minerals of the future.

BHP has put it in play and if it wants it, it will have to pay.

Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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