OZ Minerals: The end game

About the author:

Author name:

By Tom Sartor

Job title:

Senior Analyst

Date posted:

22 February 2023, 10:30 AM

Sectors Covered:

Junior (Emerging) Resources, Bulk Materials

• OZ Minerals' (ASX:OZL) in-line CY22 result takes a back seat to progress of BHP’s takeover.
• Next milestones are issue of the Scheme Booklet (detail) and Independent Expert’s report (price endorsement) pre the Scheme meeting (vote) expected in April.
• If the Scheme becomes effective, the $28.25ps takeover price is reduced by the $1.75ps special fully franked dividend to be declared March.
• We think the Scheme/ takeover has a high likelihood of proceeding.
• Investors may consider alternative opportunities in MIN and S32.

CY22 Result in-line

Key CY22 financials were in-line with expectations with revenue and unit costs pre-released. The board has approved the lift in West Musgrave project capex (+$110m, accommodation component being brought in-house) as flagged at the 4Q.

Otherwise all other CY23 guidance was re-iterated and no other material new news was released today.

Progress on Scheme Implementation

In late December, OZL entered a Scheme Implementation Deed with BHP to fully acquire OZL for $28.25ps cash. The Scheme Booklet, including the Independent Expert’s Report, is expected to be sent to shareholders in early March. The Scheme remains conditional on approval by OZL shareholders, with the Scheme Meeting expected to be held in April.

OZL confirms that it intends to declare a $1.75ps fully franked special dividend prior to the Scheme meeting, with the dividend conditional on the scheme becoming effective.

The Special Dividend record date will be three days before the Scheme record date, with both currently expected to be in late-April. If the special dividend is paid, then the cash takeover consideration will reduce to $26.50ps.

We don’t think the Independent Expert’s report (supporting value/ OZL board endorsement) or the Shareholder vote pose significant risks to the Scheme progressing.

Forecast and valuation update

CY23 guidance released at the 4Q was broadly incrementally worse than our original production, cost and capex assumptions. We revise our forecasts to bring key physicals in-line with guidance. 

We make several other modelling adjustments for; 1) CY22 actuals; 2) re-shaped medium-term production/ costs; 3) full incorporation of the Carra Block caves; and 4) adjusted copper and FX.

Our DCF valuation revises to $22.10ps (from $22.30) pre special dividend. Our target is set in-line with BHP cash takeover consideration (pre dividend).

Investment view

We think BHP’s takeover is likely to proceed. We think that an approach by a third party is unlikely at this stage.

We think OZL will trade at roughly the implied offer price or slightly below (dividend adjusted) to reflect the time to implementation/ time value of money.

Current alternative ideas in metals include Mineral Resources (ASX:MIN) and South32 (ASX:S32) covered by Adrian Prendergast.

Price catalysts

Scheme Booklet, IER and Shareholder vote (March/April).

Risks

• Scheme failure (low likelihood in our view).
• Copper market volatility (possibly affecting terms/ timing).
• Production disruption, cost inflation, commodity/ FX volatility 
• Macro dislocation/ slowdown.

Find out more

You can find further detailed analysis of company results this reporting season by browsing our reporting season tag, and view a full list of upcoming results on our Reporting Season Calendar.

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