World’s Biggest Miner Rebuffed on $5.8 Billion Copper Play

The board of Oz Minerals called the approach highly opportunistic following a fall in copper prices. Its shares, which ended trading Friday at 18.92 Australian dollars, surged by 35% in Sydney on Monday to surpass the proposed takeover price.

BHP, the world’s biggest miner by market value, forecasts that demand for copper, important to industries from construction to electronics, will double in the next three decades. Oz Minerals runs two copper-and-gold mining operations in South Australia, and another in Brazil.

Electric vehicles use four times as much copper as gasoline-fueled cars, says BHP, and wind- and solar-power production requires more copper, per megawatt hour, than producing power from fossil fuels. On the supply side, it says, the global outlook for copper production is hampered by the declining quality of deposits, water scarcity and a lack of exploration success.

BHP also wants to produce more nickel, which Oz Minerals has in a project it is developing in Western Australia, where BHP already runs nickel mines and processing facilities. The mining giant last year entered a nickel-supply deal with

Tesla Inc.

“It’s been difficult for the industry to find more resource,” BHP Chief Executive

Mike Henry

said of the metals at a conference in May. “It’s harder to access, deeper, lower-grade, or in countries with more challenging operating conditions.”

Today, BHP relies on iron ore, the main ingredient in steel, for the bulk of its earnings. It recently bet on the transition to a lower-carbon world by selling its oil-and-gas unit and approving a $5.7 billion project to mine potash in Canada.

But opportunities to buy metals operations are scarce, and competition is hot. BHP pursued Canadian nickel explorer Noront Resources Ltd., but last year lost a bidding war to Wyloo Metals, owned by Australian billionaire

Andrew Forrest.

The value of M&A deals struck by copper-focused miners worldwide so far this year is down by more than 80% from the same period of 2012, according to Dealogic, a data provider.

Oz Minerals said its board unanimously agreed that BHP’s proposal significantly undervalued the company, whose share price neared 30 Australian dollars early this year as copper climbed. Prices for the metal hit record highs as the war in Ukraine fanned fears of supply crunches at a time of historically low stockpiles, but have since fallen to their lowest level in nearly two years as investor concerns about an economic slowdown intensify.

BHP said the price it proposed was materially above brokers’ average price targets for the stock.

“We are disappointed that the board of OZL has indicated that it is not willing to entertain our compelling offer or provide us with access to due diligence in relation to our proposal,” said Mr. Henry, BHP’s chief executive.

Global mining giants including BHP have been cautious about deals in recent years after overspending on megadeals during a commodities boom a decade ago led to large write-downs, upsetting shareholders.

Still, a prolonged sale process could yield a slightly higher price, said Ord Minnett analyst Dylan Kelly. BHP has accumulated a stake of less than 5%, Oz Minerals said.

Some analysts said BHP is the natural buyer of Oz Minerals, given that it runs the large Olympic Dam copper mine close by in South Australia. It is also working on another nearby prospect, known as Oak Dam.

There are potential challenges for a foreign rival suitor. In 2009, the Australian government blocked a deal to sell Oz Minerals’ flagship Prominent Hill copper-gold mine to China Minmetals Corp., citing the mine’s proximity to a military zone.

Some of the miner’s assets are small by BHP’s standards, although could be developed into bigger or longer-life operations by the mining giant, analysts said.

“It’s a fascinating twist” for BHP, after it slimmed down to focus on fewer, large-scale resources operations, said Angus Gluskie, managing director of Whitefield, an Australian investment company.

Mr. Gluskie said Oz Minerals’ quick rejection wasn’t surprising and that resources viewed as scarce are likely to be increasingly valued by potential buyers.

“We are mining minerals that are in strong demand particularly for the global electrification and decarbonization thematic and we have a long-life resource and reserve base,” said Oz Minerals Chief Executive

Andrew Cole.

“We do not consider the proposal from BHP sufficiently recognizes these attributes.”

Write to Rhiannon Hoyle at [email protected]

The board of Oz Minerals called the approach highly opportunistic following a fall in copper prices. Its shares, which ended trading Friday at 18.92 Australian dollars, surged by 35% in Sydney on Monday to surpass the proposed takeover price.

BHP, the world’s biggest miner by market value, forecasts that demand for copper, important to industries from construction to electronics, will double in the next three decades. Oz Minerals runs two copper-and-gold mining operations in South Australia, and another in Brazil.

Electric vehicles use four times as much copper as gasoline-fueled cars, says BHP, and wind- and solar-power production requires more copper, per megawatt hour, than producing power from fossil fuels. On the supply side, it says, the global outlook for copper production is hampered by the declining quality of deposits, water scarcity and a lack of exploration success.

BHP also wants to produce more nickel, which Oz Minerals has in a project it is developing in Western Australia, where BHP already runs nickel mines and processing facilities. The mining giant last year entered a nickel-supply deal with

Tesla Inc.

“It’s been difficult for the industry to find more resource,” BHP Chief Executive

Mike Henry

said of the metals at a conference in May. “It’s harder to access, deeper, lower-grade, or in countries with more challenging operating conditions.”

Today, BHP relies on iron ore, the main ingredient in steel, for the bulk of its earnings. It recently bet on the transition to a lower-carbon world by selling its oil-and-gas unit and approving a $5.7 billion project to mine potash in Canada.

But opportunities to buy metals operations are scarce, and competition is hot. BHP pursued Canadian nickel explorer Noront Resources Ltd., but last year lost a bidding war to Wyloo Metals, owned by Australian billionaire

Andrew Forrest.

The value of M&A deals struck by copper-focused miners worldwide so far this year is down by more than 80% from the same period of 2012, according to Dealogic, a data provider.

Oz Minerals said its board unanimously agreed that BHP’s proposal significantly undervalued the company, whose share price neared 30 Australian dollars early this year as copper climbed. Prices for the metal hit record highs as the war in Ukraine fanned fears of supply crunches at a time of historically low stockpiles, but have since fallen to their lowest level in nearly two years as investor concerns about an economic slowdown intensify.

BHP said the price it proposed was materially above brokers’ average price targets for the stock.

“We are disappointed that the board of OZL has indicated that it is not willing to entertain our compelling offer or provide us with access to due diligence in relation to our proposal,” said Mr. Henry, BHP’s chief executive.

Global mining giants including BHP have been cautious about deals in recent years after overspending on megadeals during a commodities boom a decade ago led to large write-downs, upsetting shareholders.

Still, a prolonged sale process could yield a slightly higher price, said Ord Minnett analyst Dylan Kelly. BHP has accumulated a stake of less than 5%, Oz Minerals said.

Some analysts said BHP is the natural buyer of Oz Minerals, given that it runs the large Olympic Dam copper mine close by in South Australia. It is also working on another nearby prospect, known as Oak Dam.

There are potential challenges for a foreign rival suitor. In 2009, the Australian government blocked a deal to sell Oz Minerals’ flagship Prominent Hill copper-gold mine to China Minmetals Corp., citing the mine’s proximity to a military zone.

Some of the miner’s assets are small by BHP’s standards, although could be developed into bigger or longer-life operations by the mining giant, analysts said.

“It’s a fascinating twist” for BHP, after it slimmed down to focus on fewer, large-scale resources operations, said Angus Gluskie, managing director of Whitefield, an Australian investment company.

Mr. Gluskie said Oz Minerals’ quick rejection wasn’t surprising and that resources viewed as scarce are likely to be increasingly valued by potential buyers.

“We are mining minerals that are in strong demand particularly for the global electrification and decarbonization thematic and we have a long-life resource and reserve base,” said Oz Minerals Chief Executive

Andrew Cole.

“We do not consider the proposal from BHP sufficiently recognizes these attributes.”

Write to Rhiannon Hoyle at [email protected]