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BHP Group (BHP) and OZ Minerals Extend Deal Deadline

BHP Group BHP recently announced that it has received an extension till Dec 27, 2022 to finalize a binding scheme implementation deed relating to its earlier takeover offer to OZ Minerals Limited.

OZ Minerals has a high-quality portfolio of copper and nickel assets, located in a Tier-1 mining jurisdiction with long mine lives and first-quartile cost positioning. BHP made its first offer to acquire 100% of the issued share capital in OZ Minerals Limited for AUD25 per share on Aug 7, 2022. OZ Minerals’ Board had rejected the offer citing that it undervalues the company and was not in the best interests of shareholders.

On Nov 18, BHP raised its offer price to A$28.25 per share which represented a 49.3% premium to OZ Minerals’ closing price on Aug 5, 2022 — the last trading day prior to BHP’s initial proposal.

OZ Mineral’s board had then confirmed to BHP that it intended to recommend the revised offer to the company’s shareholders. The parties had entered into a Confidentiality and Exclusivity Deed under which BHP had four weeks to undertake due diligence and negotiate a binding scheme implementation agreement reflecting the key terms of the revised proposal. Now that the due diligence has been duly completed, OZ Minerals has extended the period to next week so that BHP can finalize the terms. The terms of the scheme implementation deed however remain subject to both the companies’ Board approval.

OZ Minerals owns and operates Prominent Hill, a high-quality copper-gold mine, and Carrapateena, an iron-oxide-copper–gold underground mine, both located in the highly prospective Gawler Craton in South Australia. The Carajás East Hub located in Brazil is also part of its portfolio. This hub comprises the Pedra Branca underground mine, which is the beginning of a potential series of small, high-quality copper-gold mines with ore being processed at existing facilities at the nearby, now-depleted Antas mine.

This deal, which values OZ Minerals at AUD9.6 billion ($6.34 billion),  would add to BHP’s pipeline of growth options and enhance its exposure to future-facing commodities like copper and nickel, while adding attractive synergies. BHP has been lately focusing on building its capabilities in commodities like copper, nickel and potash to ride on growing global trends such as decarbonization, electrification, population growth and rising living standards in developing countries among others.

The combination will also help BHP unlock potential operational synergies in South Australia as OZ Minerals’ Carrapateena and Prominent Hill mines are in proximity to the Olympic Dam and Oak Dam development resources. OZ Mineral’s West Musgrave project will add a large greenfield nickel option to BHP’s Nickel West premier nickel sulfide resource position in Western Australia.

Price Performance

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BHP Group’s shares have gained 3.9% over the past year compared with the industry’s 4.5% decline.

Zacks Rank & Other Stocks to Consider

BHP currently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Some other top-ranked stocks in the basic materials space Bunge Limited BG, Sociedad Quimica y Minera de Chile S.A. SQM and Reliance Steel RS. While BG and SQM currently sport a Zacks Rank of 1, RS holds a Zacks Rank #2 (Buy).

Bunge Limited has an expected earnings growth rate of 7.4% for the current year. Its earnings estimates for 2022 are pegged at $13.89 per share. BG’s earnings estimates have been revised 9.3% upward in the past 60 days. It has a trailing four-quarter average surprise of 18.7%. The stock has gained 8.4% in a year.

The Zacks Consensus Estimate for Sociedad’s 2022 earnings per share is $13.13, suggesting 540.5% growth from the year-ago reported figure. Earnings estimates have moved 1.5% north in the past 60 days. SQM has a trailing four-quarter earnings surprise of 37.4%, on average. Its shares have surged 72% in the past year.

The Zacks Consensus Estimate for Reliance Steel’s earnings is at $28.71 for the current year, indicating year-over-year growth rate of 29.8%. The consensus estimate for RS’ earnings for the current year has been revised 0.06% upward in the past 60 days. It has a trailing four-quarter average surprise of 13.6% on average. RS has gained 28% in a year.

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