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BHP makes $9.6 billion OZ Minerals bid. What does it mean for you?


Shares in the global miner have climbed 35% over the past 12 months.

Mining giant BHP (ASX: BHP) is under the spotlight on Friday after offering an eye-watering $9.6 billion for OZ Minerals (ASX: OZL), in its second tilt at the smaller rival.

In an indication of how the market perceives the takeover bid, the BHP stock, which has the highest weightage on the ASX, is up 0.7% in early trading to $44.05 each. Shares in OZ Minerals jumped 4.1% to $27.37 as the stock came out of its trading halt following the announcement.

By comparison, rival miners Rio Tinto (ASX: RIO) and Fortescue Metals Group (ASX: FMG) were trading 0.4% lower and 1.9% higher respectively.

Why is BHP keen to buy OZ Minerals?

BHP on Friday moved closer to sealing the deal with OZ Minerals after offering a revised $28.25 a share in cash for the copper and nickel miner.

The revised offer is a 13% improvement on the $25 a share proposal the target's board dismissed in August, calling it "opportunistic".

OZ has now granted BHP exclusive due diligence for 4 weeks from 21 November and says its board intends to unanimously recommend the revised proposal to OZ Minerals' shareholders.

The deal comes at a time of rapidly growing demand for battery metals amid an electric vehicle (EV) production boom.

Analysts widely expect a continued rise in prices for metals such as copper, nickel and lithium as a supply deficit looms for the battery-making materials.

The takeover, if successful, will allow BHP to expand its copper holdings in South Australia, where OZ's Prominent Hill and Carrapateena mines operate adjacent to BHP's Olympic Dam mine and smelting operations.

It will also allow the consolidation of BHP's Nickel West operations in Western Australia – which already has supply agreements with Tesla and Toyota – with OZ's West Musgrave copper-nickel operation.

The deal also makes sense due to the complementary demands on the two companies. While cash-rich BHP (thanks to its iron ore windfall) is looking to invest more in productive assets, the much smaller OZ is looking to invest more than $1 billion in West Musgrave.

Clearly, there are synergies on offer here, which will also be beneficial to BHP shareholders in the long run as it beefs up the company's portfolio of assets.

Will this address the looming copper shortage?

While the BHP-OZ deal will not solve the world's copper shortage problems, it will certainly go some way in addressing the problem over the medium term.

Copper prices have been hovering near their highest level in 5 months, in large part due to concerns about a supply shortage as demand from China revives as the world's second largest economy reopens.

The metal is already one of the most important metals with more than 20 million tonnes consumed each year across a variety of industries, but analysts see the global transition towards clean energy stretching this demand even further.

The International Energy Agency now expects copper demand to treble by 2040 as net-zero goals accelerate.

That means new supply is needed, such as OZ Minerals' proposed West Musgrave project – estimated to cost $1.7 billion with a mine life of 24 years. The project is expected to produce about 35,000 tonnes of nickel and 41,000 tonnes of copper on average annually in the first 5 years of production.

BHP believes its combination with OZ will unlock value and returns could improve further if copper prices stay higher in the longer term.

"The combination of BHP and OZ's assets, skills and technical expertise provides a unique opportunity not available under separate ownership, with complementary resources including the Oak Dam exploration prospect and existing facilities within close proximity, backed by BHP's strong balance sheet, capital discipline and commitment to sustainable development," BHP CEO Mike Henry said.

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