Why harpooning Oz Minerals could be 'beneficial' for BHP shares: fundie

BHP continues to drive investment activity within the mining sector.

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Key points
  • BHP shares are in focus as more M&A activity ramps up in the resources and energy sectors 
  • The mining giant's recent activity has been felt throughout investment portfolios up to the institutional level 
  • BHP shares have climbed nearly 7% during the past 12 months 

Shares of mining giant BHP Group Ltd (ASX: BHP) are rangebound today on no news.

At the time of writing, shares in the diversified miner are trading up 0.05% at $39.43 apiece after a choppy period these past few months.

Meanwhile, the S&P/ASX 300 Metals and Mining Index (ASX: XMM) is up 0.82% at the time of writing.

Miner on his tablet next to a mine site.

Image source: Getty Images

BHP shares set to get a boost?

There's been a spate of merger and acquisition (M&A) activity within the mining sector over the past 2 years, resulting in a large consolidation of some enormous players.

BHP's play for OZ Minerals Limited (ASX: OZL) is one prime example. The move has helped investors in the Perennial Value Australian Shares Trust already clip a tidy gain in the new financial year. It is up 6.2% since June 30.

In the fund's August report, portfolio managers Stephen Bruce, Damian Cottier, and Andrew King noted the performance saw strong attributions from healthcare and "resource holdings".

Chief to this upside was OZ Minerals, having rallied after securing the takeover bid from BHP.

It had been long speculated that BHP would make a move on OZ Minerals, with copper being a key area of growth for BHP as it reorients its portfolio towards so called "future facing" commodities, which are required for the energy transition.

Further, there will be operational benefits from combining OZ Minerals' copper assets in South Australia with BHP's Olympic Dam operations, consolidating BHP's position in the region. 

Following the positive contribution from OZ Minerals, the Trust returned 1.3% net of fees in August, but it was other resource and energy players helping clip the positive return.

Energy stocks Santos and Woodside Energy both outperformed, after delivering strong results on the back of high energy prices. Woodside, in particular, was able to benefit from strong pricing…This saw average realised prices more than double from the previous period, resulting in massive cash flows.

The fund's portfolio managers are also constructive on further M&A within the industry, and believe this could be a key growth driver for BHP looking ahead.

With Woodside, for instance, it says the company "stands to benefit from its merger with BHP's energy assets over the medium-term".

"We expect further M&A in the resources sector as people scramble to secure supply of critical minerals, with particular focus on those located in stable, well-regulated and geopolitically friendly regions," the portfolio managers added.

In the meantime, BHP shares have climbed nearly 7% during the past 12 months.

Motley Fool contributor Zach Bristow has no position in any of the stocks mentioned. 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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