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Oz Minerals rebuffs $5.8 billion takeover bid from BHP

Oz Minerals’ Carrapateena and Prominent Hill (pictured here) mines are in proximity to BHP’s Olympic Dam complex and Oak Dam deposit. (Image courtesy of Oz Minerals.)

Australian copper producer OZ Minerals (ASX: OZL) rejected on Monday an unsolicited A$8.4 billion ($5.8 billion) takeover bid from the world’s largest miner BHP (ASX:BHP), stating that it “significantly undervalued” the firm.

Earlier on Monday, BHP had offered A$25 per share for Oz Minerals, representing a 32.1% premium to the stock’s closing price on Friday.

The approach is part of BHP’s ongoing quest to expand its copper portfolio, which would have benefitted from the target company’s Carrapateena and Prominent Hill projects in South Australia. 

OZ Minerals operates copper mines in South Australia, where BHP has its giant Olympic Dam operation and Oak Dam prospect. The company also has nickel developments in Western Australia and projects in Brazil.

Chief executive officer Andrew Cole said BHP’s approach did not appreciate the growth potential of his company’s copper and nickel assets in “quality” locations. 

“We are mining minerals that are in strong demand, particularly for the global electrification and decarbonization thematic and we have a long-life resource and reserve base,” Cole said. “We do not consider the proposal from BHP sufficiently recognizes these attributes.”

BHP CEO Mike Henry said he was disappointed to learn that Oz Minderals’ board was not willing to entertain his company’s “compelling offer” or provide access to due diligence in relation to its proposal.

“Our proposal represents 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,” Henry said.

Shares of Oz Minerals have lost more than 40% of their value so far this year on the back of covid-related absenteeism and lockdowns in top buyer China, which has hit copper demand. 

Analysts forecast a change in market conditions during the second half of the year, especially in Australia, as the government rolls out stimulus to support economic growth. 

Market experts weigh in

Most financial and market experts, however, backed BHP’s attempt to acquire OZ Minerals.

“The offer is compelling and aligns with BHP’s strategy of increasing exposure toward future facing commodities,” RBC Capital Markets analyst Kaan Peker said in a note.

He added that BHP had the capacity to fund development of OZ Minerals’ suite of growth projects at a time when a weaker copper price is adding risks for the smaller producer.

Morgan Stanley’s experts took a more neutral approach, saying that while BHP’s offer made sense, OZ Minerals investors were “likely to weigh the offer against their expectations” of the long-term copper price.

“BHP loves copper. And the synergies (operational/corporate) BHP could gain through its own South Australian operations sets it apart amongst potential suitors for OZL,” analyst Adrian Prendergast wrote.

Dylan Kelly, senior research analyst at Sydney-based brokerage Ord Minnett, highlighted that Oz Minerals was one of only a handful of global copper pure play companies. “This suggests another party with a more positive view on long-term copper, may be willing to pay more than BHP even if it doesn’t have an Aussie presence,” he said.

OZ Minerals revealed that BHP has accumulated an interest of less than 5% in the company via derivative instrument.

BHP has not said whether its offer was final.