- BHP says it will not abandon fiscal discipline in the hunt for copper miner OZ Minerals
- OZ knocked back an $8.4b cash takeover offer last week
- Copper is emerging as a major strategic play for big miners to capture the tailwinds of investment in green energy
BHP (ASX:BHP) continues to describe its $8.4 billion offer for OZ Minerals (ASX:OZL) as full and fair, with boss Mike Henry signalling the world’s biggest miner will not waste its bait to catch the fish.
OZ knocked back the $25 per share bid last week without even so much as a glance or offer of due diligence, despite BHP’s call that the 30% plus premium was a compelling offer for shareholders.
Henry, who pulled BHP out of a bidding war with Andrew Forrest for Canadian nickel explorer Noront Resources last year, said the miner will remain disciplined despite its net debt dropping to just US$333m, well below its US$5-15b target, as of June 30.
“We will absolutely remain disciplined, just because we know how important it is to ensure that we’re remaining disciplined from a capital allocation perspective,” he said.
“We spent a number of years now, building trust with shareholders. That’s a very precious thing and so as we did with the Noront process of last year, we have a very clear eye on value.
“We think that the offer that we put forward to OZ Minerals, the non binding indicative offer, was very full and fair value and great premiums.
“Over 30% premium for last day trade over 40% premium to the 30-day VWAP and off the back of that and how compelling that is for all shareholders, it was really disappointing to see the other side not engage.”
Nice to have, not must have
Henry says OZ is “nice to have, not must have”.
Sweeping OZ’s Prominent Hill and Carrapateena mines in South Australia would solve some local growth problems at BHP’s nearby Olympic Dam mine, and provide an option to expand its Nickel West business in WA via the development of the $1.1b West Musgrave mine.
But outside of operational synergies, BHP is certainly bullish in general about metals exposed to the decarbonisation narrative, Chinese demand and copper itself.
BHP’s investment in exploration is set to hit US$400 million, up from around US$150m a couple of years ago, with much of that dedicated to battery metals like copper and nickel.
That will be balanced against M & A, which Henry describes as one of BHP’s “many growth levers”.
Huw McKay, BHP’s chief analyst, said in a report today released alongside BHP’s results that the company sees a major lag in investment in new copper tonnes compared to 2030 demand.
BHP says in a plausible upside case for demand the industry-wide capex bill to 2030 could reach US$250 billion. That seems fanciful, with BHP also expecting grade decline alone to knock 2Mt of mined supply out of the market by 2030.
“Yet according to data assembled by Standard & Poor’s, global capex by the majority copper producers among the world’s top 80 mining companies (i.e., excluding diversified operators) is expected to decline between calendar 2022 and calendar 2024,” McKay said.
“Total outlays in 2024 are expected to be roughly half of the peak spending levels of calendar 2014. That is a very substantial disconnect.”
Copper prices fell back below US$8000/t overnight, dropping 1.4% to US$7980/t as some horror Chinese data shook demand expectations for metals linked to Chinese economic growth.
Henry remains a China bull though, saying demand there would provide a safety net for commodities against weaker global economic outlook once it emerged from its cycle of Covid lockdowns.
“Against the backdrop of what we see as being slower overall global growth, and central banks putting in place measures to deal with the higher inflation we’re seeing in most developed economies, if I contrast that then with China, as China comes out of its COVID lockdowns and so on, we see that see that as being a tailwind for global growth,” he told reporters this morning.
And everyone wants to get their hands on more copper…
Clearly.
We’ve seen billions changes hands in the hunt for producing copper mines in the past year.
Notably South32 (ASX:S32) and Sandfire Resources (ASX:SFR) paid upwards of US$1.5b for their acquisitions of the Sierra Gorda mine in Chile and MATSA copper complex in Spain respectively.
But BHP is not the only major finding its valuations in the sector don’t match the targets’ valuations. They are after more for what they say is a business with significant legs in front of it from the decarbonisation and electrification narrative.
Rio Tinto (ASX:RIO) was yesterday rebuffed in its attempts to take over its 51% owned subsidiary Turquoise Hill Mining for US$2.7bn, a deal that would have given it a two-thirds share of the massive Oyu Tolgoi copper-gold mine in Mongolia.
The C$34 per share bid was lobbed back in March at what was at the time a 32% premium. Since then copper prices have come off by around 20%.
Still, the company says the offer “does not fully and fairly reflect the fundamental and long-term strategic value of the company’s majority ownership of the Oyu Tolgoi project”.
The mine will ramp up from around 150,000t of copper annually to 560,000tpa from the middle of the decade after its one-third owner the Mongolian Government waved through a US$7b underground expansion earlier this year.
“Ultimately, we concluded that a transaction at the price proposed by Rio Tinto would not fairly compensate minority shareholders for the fundamental, long-term value of the company’s interest in Oyu Tolgoi,” special committee chair Maryse Saint-Laurent said.
Rio similarly rolled out the financial discipline line, saying it does not intend to increase its offer price.
“Rio Tinto remains as committed as ever to the long-term success of Oyu Tolgoi. While we are disappointed by this decision, we will continue to work constructively with the board of Turquoise Hill to advance the Oyu Tolgoi project,” Rio copper CEO Bold Baatar said.
But, uh, BHP still doesn’t like getting lit…hium
Call them conservative but BHP aren’t party animals when it comes to the hottest commodity on the retail investor dial.
Lithium is one of the key investor themes making 10-baggers a reality in the modern mining landscape.
But even those 10-20-30 baggers would need to do that many times over to run with a company of BHP’s heft, multi-billion dollar dividends and all.
Henry doubled down when pressed by analysts on BHP’s take on the battery metal, which remains near record price highs and is high on rival Rio’s radar.
“We see the demand outlook for lithium as being really strong, no question,” he said.
“But for us when we need to make choices about what we see as the most attractive commodities offering the greatest long term potential most aligned with BHP’s capability, we see that as potash, copper and nickel in addition to the iron ore and high quality met coal businesses we have.
“Lithium is one because of the scale of the individual assets and the cost curve over time, we’re happy to leave to others.
“It’ll be an attractive business for some, but not BHP.”
BHP (ASX:BHP), OZ Minerals (ASX:OZL) and Rio Tinto (ASX:RIO) share prices today: