Oz Minerals share price rallies on potential $200m acquisition

Big news for the miner today has pushed the company’s shares higher.

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Key points

  • The OZ Minerals share price jumped after the company announced an acquisition option over what could be Australia’s largest undeveloped open pit copper-gold deposits
  • The miner has up to 18 months to decide if it wants to buy the Kalkaroo project
  • But the biggest winner from the deal is its junior partner Havilah Resources, which more than doubled in value

The OZ Minerals Limited (ASX: OZL) share price jumped nearly 2% in early trade on news it has an option over what could be Australia’s largest undeveloped open pit copper-gold deposits.

Management announced it had signed a binding term sheet with explorer Havilah Resources Ltd (ASX: HAV).

The term sheet gives OZ Minerals the option to acquire 100% of the Kalkaroo project. It also sets the basis for a strategic partnership between the miners in the prospective Curnamona Province in South Australia.

The OZ Mineral share price isn’t the biggest winner

The OZ Minerals share price rallied to a high of $21.85 before settling down to trade 0.75% higher at $21.62 at the time of writing.

But it’s the Havilah share price that saw most of the action. It surged 164% to 45 cents this morning. At the time of writing, it’s settled at 32 cents a share, 88% higher. The term sheet is material to the mining junior as OZ Minerals will pay $1 million a month to Havilah for the period of the term sheet.

Half of the payment will be used by the explorer to identify and advance nearby exploration opportunities in the Curnamona Province.

Details of the term sheet

Further, OZ Minerals is committed to spending another $76 million on exploration at the Kalkaroo project and on partnership activities.

In return, the S&P/ASX 200 Index (ASX: XJO) miner has up to 18 months to decide if it wants to buy the Kalkaroo project for $205 million.

Earnout component pushes acquisition cost to a max of $135m

It will have to pay Havilah another $65 million upon a 30% uplift in Kalkaroo’s Measured and Indicated Resource estimate. This is as well as a copper price-linked contingent payment in each year of production up to a maximum cumulative amount of $135 million.

Kalkaroo’s Mineral Resource estimate of 245Mt @ 0.45% Cu and 0.39g/t Au was announced by Havilah in 2018.

OZ Minerals chief executive Andrew Cole said:

The agreement provides a low-cost option and flexibility to study the Kalkaroo project, while retaining the optionality to acquire 100% of the project for a fixed acquisition price together with any deferred contingent consideration.

We believe our approach of taking projects from an early study phase through development and into operation can unlock significant value for our stakeholders, something we have demonstrated with Carrapateena, now in its third year of operation, and continue to show with West Musgrave as we approach a final investment decision on the project later this year.

OZ Minerals share price still in the red

Shareholders will be hoping that the deal will help turn sentiment towards the OZ Minerals share price. Its shares have fallen more than 12% over the past 12 months while the ASX 200 has gained around 1%.

Meanwhile, the Havilah share price has been saved by today’s jump. Its shares were wallowing around a more than one-year low but are now around 17% ahead over a 12-month period.

Motley Fool contributor Brendon Lau has positions in OZ Minerals Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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