The OZ Minerals Limited (ASX: OZL) share price has barely moved since the BHP Group Ltd (ASX: BHP) bid was announced last week.
BHP wanted to buy OZ Minerals with a bid of $25 cash per share.
OZ Minerals' response? The board unanimously rejected the bid and said it "significantly undervalued" the company. The OZ Minerals share price soared 35% on the news to $25.59.
While explaining the reasons behind the rejection, OZ Minerals managing director and CEO Andrew Cole said:
We have a unique set of copper and nickel assets, all with strong long-term growth potential in quality locations. We are mining minerals that are in strong demand, particularly for the global electrification and decarbonisation thematic and we have a long-life resource and reserve base. We do not consider the proposal from BHP sufficiently recognises these attributes.
OZ Minerals also pointed out that if BHP bought it, BHP would get "significant synergies and other benefits" in both South Australia and Western Australia. It also said there is significant growth and diversification opportunity for BHP's global copper portfolio.
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What growth potential does OZ Minerals have?
Cole gave a presentation earlier this week about the company's major projects in South Australia.
He pointed to a number of projects where there is growth potential to more than double production. That includes expansions at Prominent Hill and Carrapateena in South Australia, as well as Carajas East Province, Carajas West Province and Gurupi Province.
Cole said the company has "unique organic growth pipeline ideally placed to deliver production into a copper market with long-term structural supply challenges and distinguishes OZ Minerals from other peers which lack growth optionality".
OZ Minerals pointed out that copper and nickel demand for electric vehicles is expected to grow by seven times between 2020 to 2040. Copper and nickel are reportedly the most widely used metals in clean energy.
The copper miner also noted that there is a growing need for grid expansion. Between 2020 and 2040, demand for electricity grids is expected to double.
Where is the OZ Minerals share price headed?
The business got a huge boost from the BHP bid.
BHP didn't exactly say it wouldn't bid any higher. But, it pointed out that the offer price was a 32.1% premium to the last closing price and it was "materially above" the average broker price targets.
It's possible that BHP may not have expected that offer to be accepted, but it wasn't given access to due diligence despite the offer.
A further offer from BHP would likely be a boost for the OZ Minerals share price, but the BHP leader didn't say what it would do next.
BHP CEO Mike Henry said:
Our proposal represents compelling value and certainty for OZ Minerals shareholders in the face of a deteriorating external environment and increased OZ Minerals operational and growth related funding challenges.
We are disappointed that the board of OZ Minerals 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.
The broker Morgans thinks that BHP will come back with a better offer, because of the benefits that BHP would get from the deal. However, its price target is $25.40, implying little movement.
The broker Credit Suisse has a price target of $28, implying a possible rise of close to 10%.
The OZ Minerals share price closed 0.65% lower at $25.84 on Thursday.
