BHP Group Ltd., the world’s biggest mining company by market value, appears willing to walk away from its latest major takeover proposal.
After the release of the miner’s quarterly earnings Tuesday, BHP chief executive Mike Henry said in a call with media that OZ Minerals Ltd. OZMLF would be “nice to have” but is not a “must have.”
Earlier this month, Melbourne-based BHP proposed a US$5.8-billion takeover of its fellow Australian copper and nickel producer.
While the offer was 30 per cent above OZ’s market price, it was well below its peak share price, reflecting the sharp sell-off across the mining sector over the past few months. OZ Minerals rejected the offer, calling it “highly opportunistic.”
Mr. Henry said Tuesday that he was “pretty disappointed” but added that the offer was full and fair.
BHP will be careful in its M&A strategy, he said, and has plenty of other growth options if it fails in its quest for OZ.
“We have to remain so disciplined when it comes to the decisions that we make around M&A,” he said. “We have lots of levers for growth, and M&A is but one of those levers.”
Last year, BHP was drawn into a protracted bidding war for Canadian mining exploration company Noront Resources Ltd. BHP and Australian private equity company Wyloo Metals Pty Ltd. duked it out over the course of six months for control of Noront, which owns the Eagle’s Nest nickel project in Northern Ontario. BHP bowed out after Wyloo tabled an offer that was more than three times its original per-share proposal.
Darren Sissons, a portfolio manager with Oakville, Ont.-based Campbell Lee & Ross Investment Management, whose clients own shares in BHP, said the miner’s controlled M&A strategy will likely pay off over the long term. BHP will have the pick of the litter when it comes to M&A targets if a global recession hits, he predicted. Huge global miners such as BHP and Rio Tinto PLC will be the “buyers of last resort” for smaller companies that become overleveraged during a severe downturn, he said.
“There’s just more opportunity for them in the future,” Mr. Sissons said.
Expanding further into copper and nickel is a key part of BHP’s strategy to focus on what it calls “future facing” minerals, which also include potash and have a less problematic environmental footprint than legacy commodities such as oil and coal.
BHP recently spun off its petroleum business to Woodside Energy Group Ltd. in a deal worth roughly US$20-billion. But BHP still has significant exposure to both thermal and metallurgical coal. Used in the production of stainless steel, the latter remains a key source of BHP’s profits. Over time, coal has become a much tougher sell for investors because it is a major contributor to greenhouse gas emissions.
On Tuesday BHP said the construction of its giant Jansen potash mine in Saskatchewan is 8-per-cent complete. Located 140 kilometres east of Saskatoon, it is the largest project the company has ever undertaken and its first foray into the fertilizer sector. Potash rocketed to near-record prices earlier this year after Russia invaded Ukraine, a major grain supplier. Sanctions against Moscow also crimped exports of fertilizers out of Russia, prompting concerns about global food security. Nutrien Ltd., the world’s biggest potash producer, said in June that it would boost annual production more than 20 per cent to help meet demand.
Over the past few months, the supply shortfall in the global fertilizer market has eased somewhat, with Russia able to find buyers for its grains and fertilizers in the Middle East, China, India and Brazil.
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