The ASX defied expectations today.
The S&P/ASX200 is up just 5.00 points today to 7,020.60. Over the last five days, the index has gained 0.39%, but is down 5.70% for the last year to date.
The top performing stocks in this index are Oz Minerals Ltd up 35.25% and Appen Ltd up 13.18%.
Oz Minerals was the story of the day after BHP Group Ltd (LSE:BHP, ASX:BHP) made a $8.4 billion takeover bid at $25 per share.
BHP is looking to broaden its exposure to copper as it looks to speed up its energy transition, with CEO Mike Henry looking to turn the Olympic Dam into a globally relevant mining province.
Despite both companies' ambitions and Oz Minerals’ need for scale, the smaller company rejected the offer.
Henry was disappointed in the rejection saying the OZ board “is not willing to entertain our compelling offer or provide us with access to due diligence in relation to our proposal”.
“Our proposal represents compelling value and certainty for OZ Minerals shareholders in the face of a deteriorating external environment and increased OZ operational and growth-related funding challenges.”
OZ Minerals managing director and CEO Andrew Cole said: “We have a unique set of copper and nickel assets, all with strong long-term growth potential in quality locations. We are mining minerals that are in strong demand particularly for the global electrification and decarbonisation thematic and we have a long-life resource and reserve base. We do not consider the proposal from BHP sufficiently recognises these attributes.”
In coming to its decision, the board considered that the indicative proposal does not adequately compensate shareholders for:
- the unique nature of OZ Minerals’ core business, which represents a high-quality portfolio of copper and nickel assets, located in a Tier-1 mining jurisdiction with long mine lives, first-quartile cost positioning and extensive strategic optionality;
- the unique investment proposition which OZ Minerals provides as the only primary copper company in the ASX100;
- the low carbon intensity of OZ Minerals’ assets relative to its peers with a defined and market leading plan for further decarbonisation to meet a target of net zero Scope 1 and 2 operational emissions by 2030;
- the high-quality nature of OZ Minerals’ growth projects which include the West Musgrave Project (FID scheduled for H2 2022), the Carrapateena Block Cave and the Prominent Hill Extension which together are expected to generate significant production growth over the next five years;
- the strong long-term outlook for both the copper and nickel markets underpinned by increasing geological scarcity, global electrification and accelerating decarbonisation, to which OZ Minerals is highly leveraged; and
- the strong and consistent returns that the OZ Minerals management team has delivered with a total shareholder return of ~145% over the past five years.
The board also said the offer did not take into account the vast operational synergies.
In the news today
What the analysts say about BHP's move
The BHP offer saw Ord Minnett's Dylan Kelly upgrade OZ Minerals to 'compelling', with the price target raised to $27.40 from $16 as while BHP's offer "overvalues OZL, we see the $25/share offer as a new price floor that could increase in a drawn-out sale process.
"Compared to our previous discounted cash flow valuation of about $21 a share, it would appear BHP is overpaying relative to its fundamentals," Kelly said.
But OZL is now ‘in play’ from an M&A perspective.
Analysts were divided on the value of the deal.
J.P. Morgan analyst Lyndon Fagan is "underwhelmed", saying BHP "could have got the assets for much less a few years ago”.
"Prior to 2020, OZL consistently traded below $12 a share versus the $25 bid today," Fagan said.
"In recent years, a raft of project studies from OZL had led the market to ascribe significant value to the project pipeline, something which BHP could have argued was upside previously."
The uplift for BHP would be an aggressive push on the Carra block cave, and fast tracking the West Musgrave project.
Fagan’s forecasts show OZ Minerals could provide BHP a 10% earning boost by FY28, while with the US$5.8 billion bid represents about 4% of BHP’s market capitalisation.
Fagan said his 2HFY22 dividend payout ratio of 70 per cent for BHP "may be optimistic now, with the Board likely to hang on to the cash for M&A."
He said the bid "highlights the shortage of global copper assets and is potentially bullish for the sector in general given the recent sell-off."
However, while it "does make strategic sense" Fagan is "surprised how late BHP has left it to bid for OZL."
RBC's Kaan Peker has called BHP's offer "compelling", noting it aligns with BHP’s strategy of increasing exposure toward future facing commodities.
"Given the recent copper price weakness, and large capex burden, there were concerns around whether OZL would be able to self-fund the West Musgrave development without putting undue pressure on the balance-sheet," Peker said.
"The key risk for OZL shareholders is whether BHP remains disciplined, as we somewhat saw with the Noront transaction."
Here’s a look at some of the top small cap stories of the day
Altech Chemicals closes in on project financing for Malaysian high purity alumina project
Altech Chemicals Ltd (ASX:ATC) is continuing efforts to close project financing goals for its high-purity alumina project in Malaysia.
Nova Minerals shares rise after high-grade hits of up to 24.7 g/t gold at RPM North Deposit
Nova Minerals Ltd (ASX:NVA, OTCQB:NVAAF)’s shares surged 12.36% intra-day to $1 and was last trading at $0.94, or 5.62% higher after its latest high grade gold results.
Andromeda Metals signs second offtake agreement in a week
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Imugene showcases new PD1-Vaxx data at World Conference on Lung Cancer
Four patients were in Imugene’s 10-microgram dose cohort, and one patient achieved a complete response, meaning all signs of cancer disappeared in response to the treatment.
PolarX undertakes further sampling after recent bonanza gold and silver hits at Black Canyon in the US
PolarX Ltd (ASX:PXX) is currently cutting multiple continuous channel samples to test highly prospective outcropping mineralised vein systems at the Golden Staircase target.
On your six
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The one for good luck
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