Corporate Action: Vote in Favor of BHP’s Purchase of Oz Minerals

We recommend voting in favour of no-moat BHP’s BHP proposed takeover of Oz Minerals at the scheme meeting on April 13. We think it is in Oz Minerals shareholders’ interest to approve the deal in the absence of a superior offer, which we think is unlikely. If the deal is approved, Oz shareholders will receive total cash consideration of AUD 28.25 per share. Oz intends to pay a fully franked special dividend of AUD 1.75 per share prior to the acquisition by BHP. The payment is subject to the scheme meeting becoming effective and will come off the purchase price to be paid by BHP. We expect the deal to be approved by Oz Minerals shareholders, given the offer is well ahead of our standalone AUD 20.00 per share fair value estimate.

We retain our fair value estimate for no-moat Oz Minerals of AUD 28.25 in line with BHP’s offer. While we think that BHP is paying a full price for Oz Minerals, the dilution to our fair value estimate for BHP of AUD 39.50—which we also reiterate—is small. With net debt of about USD 7 billion—around 0.2 times EBITDA—as of the end of December 2022, in our view BHP can easily afford the USD 6.6 billion price tag for Oz Minerals. BHP’s offer is a bet on copper and nickel, with a side bet on Australia’s relatively stable geopolitics. It also reflects a relatively modest pipeline of growth opportunities for BHP. Oz Minerals’ Prominent Hill and Carrapateena mines are both close to BHP’s Olympic Dam mine and Oak Dam prospect, opening up the potential for synergies with infrastructure, for example. Moreover, Oz’s West Musgrave nickel and copper project in Western Australia is under construction, and it will likely supply nickel to BHP’s Nickel West operations in the state once fully ramped up later this decade.