BHP chief executive Mike Henry is set to face a grilling over the company’s $8.4 billion bid for OZ Minerals when he hands down the mining giant’s annual results on Tuesday.
BHP provided limited public commentary for the rationale behind its offer for the Adelaide-based copper producer this week, with its executives restricted by a blackout period.
While the proposed acquisition is in-line with Mr Henry’s strategy of pivoting the company towards so-called future facing commodities, analysts have queried the timing of the bid and how much BHP is willing to pay for the target.
Analysts from investment bank JP Morgan have questioned why BHP did not act on OZ Minerals earlier, pointing out that the stock was trading at less than half of BHP’s proposed offer of $25 a share two years ago.
“We are underwhelmed by BHP’s bid for OZ Minerals, mainly because the company could have got the assets for much less a few years ago,” they said this week.
UBS has also questioned the bid, noting BHP had plenty of options for organic growth.
“BHP does not need to do this deal”, it said.
Ironically, BHP surrendered West Musgrave eight years ago to junior Cassini Resources, later taken over by OZ Minerals, having inherited the project in its 2005 purchase of WMC Resources.
Most analysts agree BHP will have to pay more than $25 a share, given the board of OZ has unanimously rejected the bid and the stock closed at $25.70 on Friday, suggesting investors are expecting a sweetener.
But the market will be keen to get an insight into how high BHP is prepared to go to win its prize.
The West Australian understands BHP believes its offer represents full and fair value, and the company has recently proven its financial discipline when it withdrew from the race to acquire Canadian nickel play Noront Resources following a bidding war with Andrew Forrest’s Wyloo Metals.
Analysts at Macquarie have forecast BHP to post full-year revenue of $US65.5 billion on Tuesday, up from $US60.8b last year with underlying profit of $US20.4b compared with $US17.1b in 2020/21.
They have also predicted the mining giant will pay a final dividend of $US1.40-a-share ($1.97), which is largely in line with consensus forecasts of $US1.31-$US2.15.
That compares with BHP’s record final dividend last year of $US2-a-share.
“Despite the strong underlying earnings, our forecast free cash flows of $US18.3b is 6 per cent lower year-on-year, reflecting higher capital spending and our working capital assumptions,” Macquarie said in a research note to investors.
The mining giant will also on Tuesday provide its all-important operating cost guidance across its businesses for financial year 2023.
Macquarie has a 12-month price target on BHP of $48. On Friday, its shares closed down 32¢ at $38.83.