Monsters of Rock: RBC urges caution on fresh BHP-Anglo bid, Hastings shuffles the decks and Ramelius bolsters gold resources

RBC warns BHP could be coaxed into overpaying for Anglo American, fails to find synergies to support £30/sh bid
Hastings Technology Metals restructures to cut costs, with CEO to end on May 31
Ramelius reports big gold resource upgrade at Eridanus

RBC analyst Kaan Peker has issued a warning over BHP (ASX:BHP) and its hunt for Anglo American, saying it could be torching value if it accedes to Anglo investors’ dream of a 30 pounds per share plus bid.

In a note today, Peker estimated synergies of US$4.1-6.8 billion to be found in the marriage of the two companies, largely from its coal (US$2-3.4b) and met coal (US$1-1.8b) departments.

BHP has been knocked back in a £25.08/sh bid, with RBC’s UK analysts putting a £31/sh valuation on Anglo as a takeover target in a sum of its parts approach.

But Peker says when the synergies are taken into account it views the value of Anglo to BHP at £25.6-27.4/sh.

That includes US$1.5b for Anglo’s Woodsmith polyhalite potash project and US$0.4-0.7b in head office synergies, but a negative US$0.5-0.8b in desynergies for the proposed demerger of its South African iron ore and platinum businesses, which BHP does not want.

Peker says US$11b of synergies would be required to justify an offer in the 30s and over US$9b even if additional growth projects at Anglo’s copper suite are taken into account.

The one caveat is that at US$4/lb copper, US$75/t iron ore and US$200/t met coal, RBC is on the conservative side of price forecasts and well below spot.

“…assuming a +10% increase in our long-term copper price (to US $4.40/lb) adds an incremental US$2.2b (~£1.4/sh) to our AAL valuation,” Peker said.

“Under this scenario (higher long-term copper price and LT growth), the top-end of our synergy estimates would justify an offer >£30/sh.

“Obviously, BHP would be taking on significant project execution risk and copper price risk under this scenario.”

Should the deal go ahead, Peker expects to see between US$10-12b of assets hived off to fund copper growth projects and trim debt, with BHP’s overall weighting to copper in asset value terms to lift from 23% to 34% and reliance on iron ore to slip from 59% to 50%.

While that would arguably mean the merged company could warrant a higher multiple, RBC thinks that would likely take 5-10 years to achieve.

It happened at midnight … well, after market close at least

As the lights dimmed at the end of a tiring work week, Hastings Technology Metals (ASX:HAS) snuck through the news that CEO Paul Brown would be taking his leave at the end of May.

It brings an end to a reign of just eight months in an organisational restructure that will trim costs for the owner of the Yangibana rare earths project.

The developer says the Mid-West WA project is shovel ready with $147 million already tipped into the site to date.

But rare earths pricing has been unsupportive. Lynas Rare Earths (ASX:LYC) boss Amanda Lacaze estimated at the company’s March results update last month that only it and China Northern Rare Earths were cashflow positive.

And that came with Lynas deliberately stockpiling uncontracted material in the hopes of selling it into a stronger future market. Prices have risen steadily over the past month, with Shanghai Metals Market now reporting NdPr oxide at around US$56.35/kg.

But that hint of optimism hasn’t come soon enough to prevent Hastings trimming the fat, just three months on from the signing of a binding tolling and offtake agreement with China’s Baotou Sky Rock.

Brown will be replaced in bit of slant rhyme by a new chief operating officer in promoted general manager of mining operations Tim Gilbert.

He’ll report to exec chair Charles Lew.

“Our organisational review reflects the Board and management’s ongoing commitment to enhancing operational efficiency, keeping a razor-sharp focus on cost management through consolidation to ensure we are well-positioned to tackle the current challenging market conditions while retaining skilled and experienced leadership capabilities in the business,” Lew said.

“For people leaving Hastings, we thank them for their professionalism and considerable efforts in taking the Yangibana Project through to its advanced stage, with $147 million invested to date at the Yangibana Project and the project being shovel ready.”

Lew said the business fundamentals of Yangibana “remain positive and unchanged.”

The decision to pursue a tolling arrangement for Yangibana over a ‘profit sharing model’ would see free cash flow rise 82% to $3.35b and average annual EBITDA rise 48% to $258m, according to numbers rolled out by HAS in February.

But capex was increased 7% in the update to $503m, with $361m still to spend as of the start of 2024.

Ramelius eyes rivers of gold at Eridanus

Ramelius Resources (ASX:RMS) shares crossed the $2 mark for the first time since 2020, as the mid-tier gold miner announced a 64% lift in resources at its Eridanus deposit to 21Mt at 1.7g/t for 1.2Moz.

The Mid-West gold miner says more than 75% of resources are now in the measured and indicated range, with the compiled resource exceeding expectations set in a previous exploration target.

A further 10,000m of drilling is planned to begin in June, following drilling that showed plenty of life is left at Eridanus beyond an initial open pit due to deliver 300,000oz after mining and stockpile processing is complete.

It is likely to play a role in boosting the life of the Mt Magnet project, the cornerstone of Ramelius’ WA gold operations with the life of its Edna May gold mine near Westonia running short.

“In keeping with the previously released Mt Magnet 10-Year Plan, the Eridanus project is expected to figure prominently in one form or another for the entirety of the mine plan,” RMS MD Mark Zeptner said.

“Today’s significant resource upgrade, both in terms of tonnes and grade, augurs well for a mine life well beyond 10 years especially if an open pit option is ultimately chosen.

“Given the 64% increase is net of depletion and the current open pit will produce over 300,000 ounces once processed, Eridanus is set to become the third +1Moz mine in the Mt Magnet field, after Hill 50 & Morning Star.

“Further drilling has the potential to increase resources again and this will commence shortly, leading into underground/open pit mining studies in the second half of the calendar year.”

Miners in holding pattern … except NexGen, who brought this on themselves

NexGen Energy (ASX:NXG) may have an exciting deposit to develop in Rook I, but the Athabasca basin uranium play has enjoyed little empathy from investors who have torched the stock over a funding deal involving the issue of US$250m of convertible notes to buy a stockpile of uranium.

To what end?

The MMCap debenture issue, used to purchase 2.7Mlb of yellowcake, will come on top of C$600m of cash already in the company’s coffers after a $250m Aussie equity raising priced at $12.40 per share.

It’s been framed as an attempt to sure up the balance sheet to support capital needs for the Rook I development. Plenty of companies have built up physical uranium inventories as a tactic in this way, though most did so at lower prices.

Regardless of the soundness of the investment and its overall outcome, it hasn’t been popular with investors.

While the materials sector was up 0.02% today, NXG was off a whopping 11.67% to $10.90. Its bosses will have the chance to explain themselves on a conference call tomorrow.