reports of glencore eyeing oz minerals dubious

CASHED-UP copper-gold producer OZ Minerals is in the takeover sights of Ivan Glasenberg's Glencore Xstrata, which has assembled a "secret" 10 per cent stake in the Melbourne-based company, according to a weekend London media report.

Analysts yesterday dismissed the speculation which, apart from anything else, had the newly merged Glencore Xstrata bidding $1.3 billion for OZ despite its Friday closing price of $4.41 a share giving it a market capitalisation of $1.33bn.

The report in The Daily Mail's Sunday edition said that Glencore Xstrata had secretly been buying shares in OZ and had taken its stake to 10 per cent.

"Although Glencore has yet to make a formal offer for OZ Minerals, the mining giant's stakebuilding move has triggered speculation that it is soon planning to pounce on the copper group with a bid," it said.

OZ had no comment to make on the report yesterday. But it will be this morning's reaction in the OZ share price that will determine if a clarifying statement will have to be made to the ASX.

Analysts said the speculation struggled to get over some key facts. They included the requirement for a substantial shareholder notice to be lodged on Glencore having moved through 5 per cent of OZ, and Glencore not wishing to upset Beijing on its demand that the group cut its copper interests.

The demand was a condition of Beijing's approval of the May takeover by Glencore of its then 34 per cent owned Xstrata.

Glencore is still in the process of meeting the commitment, with a planned sale of its Las Bambas copper mine in Peru. A takeover of OZ as suggested would replace the Peruvian mine loss with OZ's Prominent Hill mine in South Australia.

Mr Glasenberg, who owns 8.3 per cent of Glencore, has an aversion to spending money on new projects. Prominent Hill has a short mine life, with OZ's long-term future as a producer becoming more dependent on the eventual $2.5bn development of the Carrapateena copper-gold deposit, also in SA.

Despite the dismissal by analysts of the London speculation, OZ may appeal to miners prepared to bet, as many do, that copper will be in short supply as the developing world continues "electrification", with 2017-18 considered a tipping point by most.

While Prominent Hill will have seen better days by then, Carrapateena could be developed by that time as a replacement, assuming a go-ahead in the next year or two.

Offsetting acquisition costs for an OZ bidder is the group's cash balance of $432 million at June 30. It has no debt and also owns 19 per cent of West Australian copper-gold producer Sandfire Resources. The Sandfire stake is worth about $200m, meaning about half of OZ's market value is represented by cash and liquid assets.