Sometimes, money can buy you love

Company News

by Glenn Dyer

BHP (ASX:BHP) has won out in its pursuit of OZ Minerals (ASX:OZL), with the copper company’s board agreeing to a higher $28.25 a share offer which gives OZ an enterprise value of $A9.6 billion.

The new offer is well above the initial $25 approach price in early August which was always a figure to get the game underway when lobbed in early August.

The bid, when complete, will make BHP the biggest investor in South Australia with three operating copper gold mines (with uranium, silver and minor metals) as well as two high class prospects.

When the bid is done and dusted, BHP will become the most important employer and the most influential company in South Australia.

BHP said its latest price is ‘best and final price it is willing to offer’, and allows copper-focused OZ Minerals to consider paying a franked dividend to shareholders prior to the transaction being implemented.

“After carefully assessing the revised proposal, the board of OZ Minerals has agreed to grant BHP the opportunity to conduct due diligence for four weeks on an exclusive basis and to work cooperatively towards entry into a scheme implementation agreement with BHP,” OZ Minerals said in a statement issued before trading on Friday.

“Subject to agreement of an acceptable binding scheme implementation agreement, the intention of the OZ Minerals Board is to unanimously recommend the Revised Proposal as being in the best interests of OZ Minerals’ shareholders in the absence of a superior proposal and subject to the independent expert’s recommendation.”

The agreed deal has known to be on the way since OZ asked for trading in its shares to be suspended on Wednesday until Friday to allow discussion on a possible “change of control”.

OZ Minerals chair Rebecca McGrath said on Friday the revised proposal comes after a period of board-level engagement between the two companies, which had secured a $1.1 billion improvement for shareholders.

“It is the Board’s view that progressing the Revised Proposal, including providing BHP with access to due diligence, is in the best interests of OZ Minerals’ shareholders and other stakeholders. The Board will continue to update shareholders as appropriate,” McGrath said.

OZ CEO Andrew Cole welcomed the revised proposal in Friday’s statement.

“BHP’s revised proposal is a clear reflection of OZ Minerals’ unique set of highly strategic, quality assets in quality jurisdictions and an enviable multigenerational growth pipeline of copper and nickel assets in strong demand due to global electrification,” Cole said.

“We look forward to working with BHP in a collaborative way to progress the Revised Proposal in the best interests of OZ Minerals and its stakeholders.”

BHP CEO Mike Henry said the successful bid would create a South Australian copper basin due to the proximity of OZ Minerals’ Carrapateena and Prominent Hill operations with the suitor’s existing Olympic Dam asset and Oak Dam development resource.

“BHP’s proposal represents a highly compelling offer for OZL shareholders, providing certainty at a time of macroeconomic uncertainty and market volatility, and increasing risks for the industry,” Henry said.

“The combination of BHP and OZL’s assets, skills and technical expertise provides a unique opportunity not available under separate ownership, with complementary resources including the Oak Dam exploration prospect and existing facilities within close proximity, backed by BHP’s strong balance sheet, capital discipline and commitment to sustainable development.”

As part of its defence OZ said in late August it was planning a new growth phase that would enable it to lift copper equivalent production from approximately 140,000 tonnes (actually 122,000 to 135,000 this year after cutting guidance from 127,000 to 149,000 range) to more than 340,000 tonnes through brownfield expansions at existing mines and extend mine life, and through greenfield developments such as the West Musgrave copper-nickel prospect in eastern WA (near the South Australian border).

BHP already produces more than 1.5 million tonnes of copper a year – with over 1 million tonnes coming from the huge Escondida operation alone. That means OZ Minerals will add, at best, 10% to annual output.

Olympic Dam produced 138,000 tonnes of copper in 2021-22, so OZ will double that.

But Olympic Dam is forecasting a boost in output this financial year to around 215,000 tonnes and if OZ can overcome the problems in Prominent Hill and Carapateena, then it could lift output back past 140,000 tonnes a year by the end of 2024.

Analysts say the test of BHP’s ambitions is what it does with the West Musgrave project. Does it give it the go-ahead – that is, reconfirm the original OZ decision, or does it rework it and boost it by adding more capital, or kill it off in favour of the Oak Dam prospect near Olympic Dam to the southeast.

If BHP puts West Musgrave into its Nickel West business and keeps the greenlight, it will represent a significant boost to the nickel business which BHP now regards as a Tier one business it wants to be in, along with copper, iron ore, potash and premium (hard) coking coal.

The OZ mines in South Australia – Prominent Hill, Carapateena and the prospective Kalkaroo project near the NSW border – will go into a group comprising the huge and long-life Olympic Dam mine and the new Oak Dam prospect nearby.

This will be a separate copper business to the mines in Chile.

OZ Minerals new Santa Lucia copper gold mine in northern Brazil could be sold or moved into the company’s South American copper group that boasts the huge Escondida copper mine in Chile as well as the Spence and Cerro Colorado copper mines, also in Chile and 37% of the Antamina copper zinc mine in Peru.

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