Ground Breakers: BHP gets more time to peel back the layers of the onion at OZ as miners struggle
BHP and OZ announced a week’s extension to the four-week due diligence period on the transaction today.
It will give BHP and its advisors until December 27 to make its assessment on the state of the OZ copper business.
Priced a $28.25 per share or $9.6 billion, the deal underlines copper and nickel’s importance to global mining houses amid the energy transition and ranks as one of the biggest completed by a major miner in years.
BHP, which has not looked externally since its disastrous push into US Shale a decade ago, stumped up $9.2 billion for Western Mining Corporation in its last major Australian deal in 2005.
That delivered the Olympic Dam mine, a monstrous copper, gold and uranium IOCG deposit and smelter in South Australia which has struggled to pay its way thanks to technical challenges.
OZ’s nearby Carrapateena and Prominent Hill operations will immediately grow BHP’s copper inventory at a time when it is trying to diversify by reducing its reliance on iron ore and coal and grow its exposure to future facing commodities.
It will also provide options at Olympic Dam, which could facilitate the development of the large Oak Dam discovery around 500km away, and bolster BHP’s battery-focused Nickel West business in WA with the construction of the $1.7 billion West Musgrave nickel and copper mine.
The market is still treating this as a done deal, even though both companies say there is “no certainty” a binding scheme implementation deed will be agreed.
While BHP seems happy to use its bulging bank account to splash on acquisitions, rival Rio Tinto (ASX:RIO), which sealed the US$3.3b deal to buy out minority shareholders in its Oyu Tolgoi copper-gold mine this month, has cautioned against major M&A.
Rio has been reported as a hunter of projects in the emerging lithium space, but CEO Jakob Stausholm does not appear keen on any so-called mega deals.
“I think that will be really, really sad for us if we embarked upon too large scale (an) acquisition,” he told analysts and investors at the miner’s capital markets day event last month.
Liontown Resources (ASX:LTR) is one of lithium stocks that have looked a little flaccid this month as the market for the battery metal has turned in the wrong direction.
But development is continuing unabated at its Kathleen Valley mine in WA’s Goldfields, where a binding power purchase agreement has been inked with Zenith Energy to supply the mine and camp for a period of 15 years.
The 95MW hybrid power station is expected to be one of the largest off-grid wind, solar and battery systems in Australia’s mining industry, with 46MW of emissions free power generating capacity.
Expected to open alongside the commissioning of the Kathleen Valley processing plant in the first half of 2024, it will also have 27MW of gas thermal generation and 5MW of diesel standby which can operate in “engine off mode”, ensuing 100% renewable penetration at times of high wind and solar resources.
The developer intends to have 60% renewable penetration on opening the mine, the world’s first underground hard rock spodumene development.
Canberra’s Export Finance Australia will provide a $25m guarantee facility as part of the PPA.
“Finalising the Power Purchase Agreement marks another important milestone for Liontown and the development of Kathleen Valley, paving the way for the construction of one of the largest off-grid wind-solar-battery storage facilities of its kind in the Australian resource sector. This reflects our unwavering commitment to delivering on our ESG credentials and establishing industry-leading carbon emissions from the outset,” LTR MD Tony Ottaviano said.
“Zenith Energy’s commitment to deliver a high-capacity hybrid power solution includes incentives to produce renewable power over thermal power and, together with a renewable energy guarantee, sets us up to meet our renewable energy target of 60 per cent at start up.
“Securing the $25 million guarantee from Export Finance Australia assists to reinforce Liontown’s position as a new globally significant producer and exporter of lithium integral to the transition to a low-carbon future.”
Also at Kathleen Valley, contractor Monadelphous (ASX:MND) announced a contract for the supply and fabrication of structural steel and platework for LTR alongside $110m of contract awards.
Up over 35% this year, the mining services provider has also secured work with BHP in its WA iron ore business, at the Escondida copper mine in Chile as well as pipeline and civil contracts in the Queensland coal seam gas market and on the West Gate Tunnel project in Melbourne.
The news dropped on a poor day across the mining sector as all the major commodities fell overnight.
Gold was lower while iron ore took a hit on Chinese Covid cases before rebounding 0.86% on the futures market in Singapore this morning to US$108.50/t.
Nickel dropped overnight on the LME as well, with the three month delivery price down 3.74% to US$27,215/t.
Materials stocks fell 0.87% to 12.35pm AEDT.