OZL BHP Takeover breakdown BHP Group Limited (“BHP”) to acquire...

OZL BHP Takeover breakdown

BHP Group Limited (“BHP”) to acquire all shares in OZ Minerals for A$28.25 per share in cash via a scheme of arrangement (“Revised Proposal”).

The Revised Proposal follows a period of engagement with BHP after BHP’s unsolicited, conditional, non-binding and indicative proposal received on 5 August 2022 (“Initial Proposal”).

The Revised Proposal of A$28.25 per share represents:

• an enterprise value for OZ Minerals of A$9.6 billion¹ ;

• a 49.3% premium to OZ Minerals’ undisturbed closing share price of A$18.92 per share on 5 August 2022;

• a 59.8% premium to OZ Minerals’ undisturbed 30-day volume weighted average price of A$17.67 per share as at 5 August 2022; and

• a 13.0% increase compared to the Initial Proposal of A$25.00 per share.

The Revised Proposal also allows OZ Minerals to consider paying a franked dividend to shareholders prior to the transaction being implemented. The cash consideration price will be reduced by the cash component of any dividends or return of capital paid by OZ Minerals before the date of the implementation of the Revised Proposal.

¹Based on OZ Minerals’ fully diluted shares on issue of 336.8 million (inclusive of 2.1 million performance rights) and net debt of A$84m as at 30 September 2022.

The Revised Proposal from BHP follows a period of Board-level engagement, securing a circa $1.1 billion increase to the Initial Proposal

What does BHP get for their money?

The West Musgrave September 2022 Mineral Resource and Ore Reserve

The Nebo nickel-copper deposit (Nebo) lies approximately 1.5 km north-east of the Babel nickel-copper deposit (Babel) (Figure 2). Independent models were created for each deposit.

Nebo and Babel were discovered by WMC Resources in 2000 and acquired by BHP Billiton in 2005. WMC Resources and BHP Billiton undertook separate drilling campaigns from 2001–02 and 2006–11, respectively. Cassini Resources Limited (Cassini) purchased the project from BHP Billiton in April 2014 and completed a significant infill drilling campaign at Nebo-Babel followed by a Scoping Study in April 2015, which showed favourable results.

OZ Minerals signed an Earn-in and Joint Venture Agreement in October 2016 with OZ Minerals earning a 70% equity stake in the project in April 2019 by contributing $36 million towards the Pre-Feasibility Study (PFS) and regional exploration. In February 2020, the PFS was completed and demonstrated an approximate 26-year mine life via open pit mining methods.

In October 2020, OZ Minerals acquired Cassini via an on- market scheme of arrangement, consolidating ownership of the WMP to 100 percent.

Project Overview

The WMP is a significant greenfield copper and nickel project located in the remote Ngaanyatjarra Aboriginal Lands of central Western Australia. The project represents the first major mining project in the Ngaanyatjarra Lands and within the highly prospective West Musgrave Mineral Province. The WMP is located in the West Musgrave Ranges of Western Australia, approximately 1,300 km North-East of Perth and 1,400 km North-West of Adelaide, near the intersection of the borders of Western Australia, South Australia and Northern Territory. The nearest towns include the Indigenous Communities of Jameson (Mantamaru) 26 km north, Blackstone (Papulankutja) 50 km east, and Warburton (Milyirrtjarra) 110 km west of the project.

WMP will be a long-life, low-cost asset producing in-demand minerals in a Tier 1 jurisdiction. The open pit mining operation will produce nickel and copper sulphide concentrates via a typical crush, grind, and flotation flowsheet. Under the WMP Base Case assumptions, both nickel and copper concentrates are transported to a diverse domestic and international customer base. Due to the remote location of the WMP, MHP presents a significant opportunity to reduce transport movements and costs through further concentration of product. The MHP Project has investigated the potential of developing a hydrometallurgical processing facility, adjacent to the currently planned WMP Mineral Processing Plant (MPP), to process the nickel concentrate (10 – 13% Ni) into a high grade MHP product via a Pressure Oxidation (POX) and precipitation process.

MHP Process Description

The nickel concentrate contains a high proportion of nickel hosting pentlandite, which is also accompanied by other sulphides: pyrite, chalcopyrite and pyrrhotite. Near complete extraction of the nickel, cobalt along with copper is attained by pressure oxidation.

Pressure oxidation is a process whereby oxygen is injected into an autoclave (pressure vessel) along with the concentrate to produce an autogenous reaction that heats the material and liberates the valuable metals into solution. A liquor rich in dissolved metals is produced that contains the target elements (nickel, copper, and cobalt), other metals (iron, aluminium) and sulphuric acid. The reaction also produces solids, in the form of an iron rich sand like material (hematite) and elemental sulphur.

The products of the pressure oxidation reaction are cooled by controlled depressurisation of the solid-liquid solution, releasing steam. The solids are separated from the cooled solution, washed, and deposited into a tailing facility, while the metal rich liquid is forwarded through several treatment stages. Initially, the liquor is neutralised to remove most of the iron and aluminium and free acid from solution by the addition of a locally sourced base reagent. Solids containing the iron and aluminium are separated, washed from solution and disposed. The liquor leachate containing nickel, cobalt and copper is then treated with a reducing agent to precipitate the copper from solution. The copper sulphide concentrate (CuS) is filtered and washed to produce a saleable product.

Nickel and cobalt remain in solution which is forwarded to a further stage where these metals are precipitated from solution by a base reagent to produce a Mixed Hydroxide Precipitate (MHP). The MHP is separated from the now barren liquor, washed, and dewatered to produce a saleable product. A portion of the barren liquor is reused for reagent preparation and the remainder is evaporated.

The MHP Process for treating West Musgrave nickel sulphide concentrate was developed by Dr. David Dreisinger and Mr. Ken Baxter of Dreisinger Consulting Inc. on behalf of OZ Minerals.

Note: Not that far from Yulara (Uluru)

MHP Pilot Plant

A 12-day pilot plant program was successfully completed at Hazen Research Inc., Colorado, USA, on typical nickel sulphide concentrate produced from ore body representative drill core from the West Musgrave Nebo/Babel deposit. Operation of the pilot plant demonstrated the process flowsheet on a continuous basis, with no fatal flaws identified. The pilot plant successfully precipitated a high quality MHP product containing nickel and cobalt, along with a copper sulphide concentrate. External benchmarking indicated the MHP product compares favourably against other MHP products currently in the market, with very low Zn & Mn (key impurities). Based on the operations of the pilot plant, 48% Ni and 1.2% Co (effective dry basis) MHP product grades at 97.5% and 95.6% total recovery respectively, along with a 60% CuS product grade at 83.9% total recovery, were selected by the Engineer to develop a process design criteria (PDC) for a capital and operating cost estimate update.

MHP Capital and Operating Cost Update

The process design criteria formulated from the pilot plant was used as the basis for an AACE Class 5 (Scoping Study) capital and operating cost update performed by Newpro Engineering for a 250 ktpa sulphide nickel concentrate processing facility to be built onsite at West Musgrave. The estimated capital cost being $A325m².

+/- 30% and an on-site operating cost of $A337 +/- 15% per tonne of nickel sulphide concentrate processed.

A preliminary estimate for export freight unit costs is A$280/t – A$300/t of product.

²Includes A$17M of pre-development study costs.

Market Analysis & Business Development

CRU was commissioned to assess the nickel market, with particular focus on the battery sector and outlook for NiSO 4 and MHP, helping to inform this section of the study3 . A key theme from this analysis is that nickel demand growth is expected to be increasingly driven by battery demand, with relatively consistent demand for nickel used in stainless steel and other alloys. Nickel sulphate (NiSO4 ) production, the predominant nickel feedstock into battery materials, is expected to increase at a CAGR of ~18% between 2021 and 2030. This growth is expected to be met by a strong increase in the use of MHP and laterite matte as NiSO 4 feedstock, with 2030 forecast market share of 36% and 40% respectively based on CRU forecast.

CRU analysis indicates MHP is a preferred feedstock for NiSO 4 producers due to lower production costs relative to alternate feedstocks under most market conditions, with the long term MHP price, typically quoted as % payable to LME nickel, expected to be a function of the NiSO 4 price. CRU analysis indicates long term NiSO4 prices (2030) are forecasted to be ~US$2,800/t Ni above the LME nickel metal price, supported by higher cost of laterite matte conversion, and resulting in a CRU Base Case MHP payable nickel forecast of 85-89% (between 2025-2030), materially above payable terms for nickel concentrate. Similarly, CRU forecast cobalt payables between 87-89% over the same period.

Conversion to MHP is expected to provide a clear and more direct route to the battery segment of the nickel market compared with the concentrate smelting route, potentially providing benefits in terms of traceability. Additionally, West Musgrave MHP is expected to be particularly attractive to participants in the battery value chain given its long life, low carbon footprint, quality and its location in a favourable jurisdiction. While current MHP refining and NiSO 4 production is broadly dominated by China, the trend towards regionalisation of supply chains (e.g. US Inflation Reduction Act) has seen an increasing interest in establishing traceable alternate sources of supply, for which West Musgrave MHP represents a viable and sustainable long-term feedstock.

The Carrapatenna Block Cave Expansion Project

The Sub Level Cave and the Block Cave Expansion 2022-2025 capital spend provided in the 4-year guidance table in January 2022 totals $1.61 billion.

Note: The Carrapatenna Project currently accounts for almost ½ the groups copper production.

See graph:

So in reality BHP is paying a huge amount for future increased production of Carrapateena Block Cave expansion and West Musgrave polymetallic Copper, Nickel, etc production. So it’s not what OZL are currently producing. From the articles & announcements I have read, BHP is expecting robust pricing for the Nickel, Copper by 2030

Using an average of first 3 x Q's production we see OZL will be close to their lower guidance range and Carrapateena supply 47.72% of copper production this year.

Musgrave West Project

BHP require sealed roads to be constructed from West Musgrave to Trainline at Leonora. Slated for completion by 2030

Then train to Esperance with collective est. distance to port of 1,458km. One of the most remote mining operations in Australia.

No electricity out there so a large Solar/ Windfarm operator to construct power supply.

Very remote location with need to obtain workforce, accommodation camp, airstrip etc. basically no services.

BHP have allocated capital costs of West Musgrave to be in the vicinity of

A$1.6 – A$1.7 Billion which will very likely increase if not completed by 2030

$9.6 Billion Take Over of OZL

$1.61 Billion Carrapateena Block Cave expansion

$1.7 Billion West Musgrave

$325m MHP at West Musgrave

Total $13.235 Billion Capital spend but very likely to be more by end of the decade.

How does this relate to CYM?

Well, CYM projects have the combined potential to be in the vicinity of 100Ktpa Copper, Cobalt, Gold and Silver showing just how undervalued CYM is currently.

BHP’s huge spend on OZL acquisition and future capital costs should direct money into the sector. Financiers and fund managers wanting to enter the sector will now clearly see BHP’s ambitions and look for opportunities.