Ground Breakers: As BHP seals OZ deal, copper stores continue to run dry

OZ Minerals shareholders unsurprisingly vote to the tie the knot
Will the premium $9.6b deal be a steal or a headache for BHP?
Materials breaks even in ho-hum morning

BHP (ASX:BHP) is inches from putting a ring on OZ Minerals (ASX:OZL) after shareholders voted to take the plunge and sign up to the $9.6 billion cash takeover at a meeting held online and at OZ’s Adelaide Airport office this morning.

While OZ chair Rebecca McGrath faced a small flurry of questions from long-time holders with an uncouth emotional attachment to their stock, including one bloke disappointed he would no longer be able to trade off the pollution from his vintage car by investing in EV metals, OZ’s acceptance of the $28.25 per share cash offer has been largely a foregone conclusion since it received the ‘fair and reasonable’ label from independent experts Grant Samuel last month.

98.33% of votes cast by OZ holders were in favour of the scheme of arrangement, with 88.34% present at the meeting or with proxy representation supporting the tie-up in what McGrath and MD Andrew Cole later called a “strong endorsement”.

The scheme will be confirmed at a Federal Court hearing on Monday morning, with implementation expected on May 2.

Copper, the main commodity mined by OZ and one of BHP’s largest strategic priorities, is trading a tick under US$9000/t at the moment.

Weak demand in the inflation-fighting West has been offset by a recovering China and poor supply story.

According to ANZ’s John Bromhead this morning, inventories at the LME hit their lowest level since 2005 on Tuesday and have fallen since.

“Industrial metals traded higher as investors weigh supply constraints against weakening demand due to slowing economic growth,” he said this morning.

“Investors are cutting their bullish bets in major metals in the face of rising recession risks. We believe China’s strong demand could offset some demand weakness in developed markets.

“Credit growth in China was faster than expected in March, according to data from the People’s Bank of China on Tuesday. There’s also rising expectations of more monetary easing in Asia’s biggest economy, as Beijing tries to support the country’s recovery.

“Copper inventories in the LME’s global warehouse network fell to 56,800t, extending declines after reaching their lowest levels since 2005 on Tuesday.”

Why sell?

It has prompted some OZ holders of the more sentimental variety to ask, at the last minute, why sell up?

Copper demand is expected by many analysts to double by the middle of the decade as electric vehicle and renewable manufacturing rises to replace fossil fuel emitting transport and electricity.

McGrath said the decision to sell into the BHP bid had nothing to do with short term weakness in the copper price.

“We certainly don’t and have not come to this recommendation just on short term copper price,” she said in response to questions.

“Our role is to be stewards of the company and look at the long term and we’ve … most certainly taken that into consideration when we considered this offer. We considered it very carefully and … there was an initial offer that was considerably lower that we rejected quite promptly.

“But after considering the options for the company, its growth prospects, risks that are … in the market of being in a commodity market like copper, the risks inherent in the business that we do and the risks associated with funding and other attributes of long term strategy, we felt that this offer was compelling and that’s why we have recommended it to you today.”

Attention will now turn to BHP’s long term plans to incorporate OZ’s Prominent Hill and Carrapateena copper mines into its South Australian copper-gold business centred around the Olympic Dam deposit and whether it pushes ahead with the $1.7 billion development of OZ’s West Musgrave nickel and copper mine in WA.

The big question will be has BHP overpaid or will the coming copper shortage make the deal a steal in hindsight?

BHP (ASX:BHP) and OZ Minerals (ASX:OZL) share prices today:

Materials not bothered moving its lazy butt

As OZ shareholders voted to say toodle-oo, the rest of the materials sector was as middle of the road as you could get, literally breaking even in morning trade.

There was a bounce for Whitehaven Coal (ASX:WHC) after it fell on a guidance cut yesterday.

Meanwhile, battery metals are continuing their recovery, with Pilbara Minerals (ASX:PLS), Mineral Resources (ASX:MIN), IGO (ASX:IGO) and Liontown (ASX:LTR) all in the green.

At $2.76, LTR continues to trade well beyond the $2.50 cash offer it rejected from Albemarle last month to take out the company and its 500,000tpa Kathleen Valley lithium mine.