Ground Breakers: OZ Minerals is in a trading halt and ... why hello, BHP

OZ Minerals is in a trading halt for a potential change of control transaction
All signs point to a new offer from BHP, which had a $25 per share bid knocked back by OZ’s board in August
Pilbara Minerals announces framework to begin returns to shareholders as rivers of gold flow from lithium boom

Ring the alarm boys, OZ Minerals (ASX:OZL) is in a trading halt pending the announcement of a change of control transaction.

And market speculation is already pointing to word of an agreed tie-up with the venerable old man of Australian mining BHP (ASX:BHP), which was callously knocked back by OZ in its attempts to secure the target for $25 a share (a tidy $8.4 billion) back in August.

The new deal would likely need to come in higher than that, with copper prices rising off positivity about China’s potential reopening from Covid and OZ’s shares trading at $26.30.

It is a level that suggest shareholders expect a larger payout for their stakes in the mid-tier copper miner, owner of the Prominent Hill and Carrapateena mines in South Australia’s Gawler Craton.

BHP has previously taken a hardline stance on calls from both OZ and analysts to present a more attractive offer, with Mike Henry again calling OZ “nice to have, not must have” at its AGM in Perth last week.

The deal would consolidate the major mines in that region for BHP, along with its giant Olympic Dam deposit, where it also produces gold and uranium.

It would also see BHP secure additional nickel feed for its BHP Nickel West business. OZ has approved the construction of the $1.7 billion West Musgrave nickel and copper project on WA’s border with South Australia.

A study on an extra step at West Musgrave, to produce mixed hydroxide precipitate for nickel sulphate battery suppliers, could be developed after the mine enters production in the latter stages of 2025.

The project would be one of the largest standalone nickel mines to be developed in WA, challenging Glencore’s Murrin Murrin and BHP’s Mt Keith operation for scale.

BHP has made copper and nickel the centrepiece of its plan to diversify from fossil fuels and bulks, even though iron ore and coal made make up the largest chunks of its earnings in FY22.

As coal prices normalise copper will become the clear number two commodity in its portfolio, with BHP and independent analysts expecting the metal to be one of the big long term winners from decarbonisation.

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

Get ready for some tasty divvies from lithium giant Pilbara Minerals

Pilbara Minerals (ASX:PLS) will target a dividend payout ratio of 20-30% of free cash flow in a new capital management framework devised after record spodumene prices saw the miner’s Pilgangoora lithium mine become a cash cow this year.

Sitting on a war chest of $1.375 billion at September 30 after making a tidy $8.5 million a day in the September quarter, investors have been keen to get a window into potential dividend payments for some time.

It marks a measure of maturity for the lithium sector, with one of its leading lights finally looking like it will be able to make distributions alongside a range of expansion projects including an approved ~$297.5 million expansion to 680,000tpa that will add 100,000t to its run rate and prep for a further expansion to 1Mtpa.

Lithium stocks were savaged yesterday on fears prices may have reached their peak as rumours battery maker CATL could reduce production in the coming months hurt ASX stocks.

But PLS was back in the good books today, up 3.62% to $5, with shareholders running through the door ahead of those potential payouts.

“The strong dynamics we are experiencing for the lithium materials market and healthy production profile have quickly transformed the financial position of the business,” PLS CEO Dale Henderson said.

“With this comes the opportunity to bolster the growth path for the business and provide improved long-term value return for our shareholders – many of whom have stayed the course through both our ups and downs.

“With strong cashflows being generated, it is pleasing to be in a position to seek to return value to our shareholders so early in our operational life via a maiden fully franked dividend for the 2023 Financial Year.”