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OZ Minerals gives green light to $1.7b copper-nickel mine

Updated

OZ Minerals has pressed start on a new $1.7 billion copper-nickel mine in remote Western Australia, in a move that could result in the miner emerging with a heavyweight electric vehicle partner, and further complicate the road ahead for takeover suitor BHP.

Andrew Cole-led OZ Minerals said car and battery makers had shown a keen interest in owning a strategic stake in the mine.

OZ Minerals boss Andrew Cole.Β 

Any deal would continue a trend where car and battery makers were no longer content with offtake agreements, preferring to lock in supply through part ownership of green metal mines.

Andrew Forrest’s Wyloo Metals has hinted it was likely to partner with a big car maker in developing a nickel mine in Canada, and there are similar equity deals being done in lithium.

β€œThe pace at which it’s happening is picking up very quickly and this is all fuelled by the long-term supply demand fundamentals,” Mr Cole said.

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β€œConsumers of these products are starting to worry about where the long-term supplies are coming from with all independent agencies forecasting a supply deficit in the next half dozen years.”

The copper-nickel project at West Musgrave was already considered to be a key piece in the takeover puzzle for BHP, and will now cost OZ Minerals much more than expected.

The new $1.7 billion price tag for capital investment compares with a previous estimate of $1.1 billion, and the takeover plot has thickened after OZ Minerals talked up the prospect of joining forces with a big downstream partner.

Future targets

OZ Minerals, which scorned an $8.4 billion takeover offer from BHP in August, has lined up $1.2 billion in debt funding from a syndicate of banks to help pay for the new mine.

The company is targeting first concentrate production in the second half of 2025, which aligns with forecasts of nickel demand outstripping supply.

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BHP and OZ Minerals were in talks about offtake agreements for West Musgrave before the takeover offer was lobbed six weeks ago.

BHP, which once owned West Musgrave, has held fire on its next move since being denied due diligence by the OZ Minerals board. But reports last weekend suggested it was considering raising its original $25 a share bid.

West Musgrave is slated to produce both nickel and copper concentrate, but OZ Minerals is working on plans to add value by turning nickel into mixed hydroxide precipitate (MHP) on site.

Although OZ Minerals can sell copper under existing umbrella supply agreements, the nickel is up for grabs and attracting interest from potential partners.

β€œWe have been talking with potential downstream partners for many months now as part of our MHP project,” Mr Cole said.

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β€œIt is becoming increasing clear that downstream companies are looking to secure upstream supply. We have been inundated with inbounds from various companies wanting to secure offtake and potentially equity in the project.

β€œTo date, we have simply said a minority interest in the project, and we’ve kept it fairly loose. I suspect each of them [potential downstream partners] is going to have a different value proposition, so we’re open to listening to their value propositions.”

BHP has been silent on OZ Minerals since September 8, when chief executive Mike Henry told shareholders that M&A was just one growth option in copper.

β€˜We’ve got a number of levers’

β€œIn the case of OZ Minerals, we approached them with a non-binding indicative offer that we thought was very compelling for OZ shareholders and, disappointingly, they chose not to engage with us,” he said.

β€œBut like I said, we’ve got a number of levers … that we’re pulling on to unlock growth, all starting with these great resources that we already have inside the company.”

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OZ Minerals expects West Musgrave to produce an average of 35,000 tonnes a year of nickel and 41,000 tonnes a year of copper over the first five years of operation.

Over the 24-year mine life, it expects annual production of 28,000 tonnes of nickel and 35,000 tonnes of copper.

Mr Cole said development of West Musgrave would unlock β€œone of the largest undeveloped nickel projects in the world”.

He said the project was fully approved and had the support of traditional owners and the West Australian government.

OZ Minerals expected West Musgrave to generate about $9.8 billion in undiscounted cash flow over its operating life.

Mr Cole said the higher than expected $1.7 billion price tag was offset by a substantial increase in project value and would result in stronger cash flow generation in the order of $1.9 billion during the first five years of production.

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In July, OZ said it was considering delaying the mine because of labour shortages and inflationary pressures.

Mr Cole said the mining industry was now on a more even keel and appeared to be over some of the disruptions that stemmed from the COVID-19 pandemic.

β€œWe’re now seeing the reversion of some of the cost curves and [contracting] companies feel very comfortable providing fixed price quotes and honouring those quotes now,” he said.

It is estimated 1500 workers will be required in the construction phase of the mine which sits near the intersection of the WA, South Australian and Northern Territory borders.

OZ Minerals plans to export West Musgrave product from the port of Esperance on WA’s south coast and from Geraldton in the state’s midwest.

Brad Thompson writes across business and politics from Western Australia for The Australian Financial Review. Brad is based in our Perth bureau. Connect with Brad on Twitter. Email Brad at [email protected]

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  • Mining
  • OZ Minerals
  • BHP Group
  • AFR Weekend
  • Mergers & acquisitions
  • Copper
  • Nickel

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