Whispers of a Glencore OZ minerals deal

Speculation is rife in early trade of the Australian market, with a possible deal between OZ minerals (OZL) and Glencore Xstrata (GLEN).

OZL has spiked 4.54% on news out of the British press that GLEN is considering a takeover of the company. The same report cites the fact GLEN’s ownership of OZL has now reached 10%, having quietly accumulated the securities over an undisclosed period. This has made buying hit fever pitch.

This issue behind this story is its creditably. The source of the takeover deal is the Daily Mail. It has been unable to quote any particular persons involved with a proposed deal and has not stated any possible figures for purchase and valuation, nor what GLEN expects out of the deal.

If we look at the assets OZL has on its books, questions will be raised even higher.

Copper is one commodity that remains in high demand; prices are rising and have sustained its north print even in the face of ‘China fears’ and falling US demand (which is now rising). The issue for OZL is Prominent Hill.

The mine is riddled with issues; wall slippages, production slowdowns, cost blowouts, asset write downs and the strip ratio that are all not up to scratch. As its only production mine, Prominent Hill has sent OZL’s share price falling 64% over a one year period.

The white knight on OZL’s books is Carrapateena; exploration numbers are strong, ratios are high, the ore body is more than commercially viable and value add to OZL in production stage is highly creditable.

The issue is Carrapateena is will not be in production phrase till (at the earliest) FY15 and some analyst are even predicting production to start FY16.

This therefore begs the question, what does GLEN get out of a possible deal?

There is no doubt the stock is cheap; fundamental multiples are well down on historic numbers and a discount valuation model would suggest the company is a buy.

However, the mine site issues and the capex needed to bring Prominent Hill up to scratch is the first barrier to entry.

If GLEN could acquire Carrapateena, then maybe the deal would make sense, however GLEN’s CEO Ivan Glasenberg is looking for developed assets; something Carrapateena is not and might put the deal on the back foot.

All-in-all the Chinese whispers coming out of the Daily Mail look very dubious to say the least. 

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