The agreed AUD 418 million acquisition of ASX-listed copper and gold producer, Avanco Resources, is an interesting move for no-moat-rated Oz Minerals. The acquisition brings one small operating copper and gold mine in Brazil, an undeveloped copper/gold resource, and an undeveloped gold resource. All assets are 100% owned. In addition, Avanco also has the option to acquire 100% of a further copper/gold resource from Vale. Collectively, the assets host resources containing 1.0 million tonnes of copper and 2.7 million ounces of gold. For context, Oz Minerals' existing resources at Prominent Hill and Carrapateena host 3.6 million tonnes of copper and 5.1 million ounces of gold. We see the acquisition as value neutral for Oz Minerals and maintain our AUD 7.80 per share fair value estimate. The purchase of the relatively capital-constrained Avanco brings some interesting optionality to Oz Minerals, adding to the company's growth profile. The Avanco assets are relatively small scale at present. Successful exploration and subsequent material expansion of the proposed developments is the upside case. But for now, we think the price being paid is fair and there is reasonable, but not unrealistic, optimism baked into the price. The Avanco acquisition brings copper and gold assets in Brazil. Current production is around 14,000 tonnes of copper and 11,000 ounces of gold from the Antas mine. With development of the Pedra Branca copper and CentroGold projects, and a possible expansion of the Antas mine, we see potential for Avanco's assets to add about 50,000 tonnes of copper and 140,000 ounces of gold to group production by 2022. This compares with expected production from Prominent Hill and Carrapateena of about 120,000 tonnes of copper and 260,000 ounces of gold in 2022.
AVB Price at posting:
16.0¢ Sentiment: None Disclosure: Held
