Major miner OZ Minerals (ASX: OZL) has launched a A$444 million bid for Brazil focused copper miner Avanco Resources (ASX: AVB), with both boards endorsing the takeover.
According to Avanco, the off-market takeover values Avanco at A$0.168 per share, which is a 118% premium to Avanco’s A$0.077 closing price yesterday. The offer is also a 115% premium to the Avanco’s one-month volume weighted average price.
Under the offer, Avanco shareholders will receive A$0.085 cash and 0.009 OZ Minerals shares for each Avanco share held.
If the offer goes ahead, Avanco shareholders will effectively own up to 7.3% of OZ Minerals.
Speaking with Small Caps Avanco company secretary Scott Funston said, “the directors of the company have unanimously recommended the bid.”
“It gives shareholders greater certainty in realising the value of their shares and ownership. It also gives shareholders greater certainty with financing, developing and getting all our projects into production.”
Avanco has already received endorsement for the takeover with almost a third of its shareholders indicating they would accept the offer in absence of a superior proposal.
Commenting on the takeover, Avanco managing director Tony Polglase said the offer afforded Avanco shareholders an “attractive opportunity” to realise the value of their assets now as well through continued exposure to OZ Minerals larger base metals portfolio.
Similarly, OZ Minerals’ board believes its strong free cash flow would assist with unlocking Avanco’s copper and gold assets.
“We believe combining Avanco’s experienced in-country management team with OZ Minerals’ funding capacity and underground technical expertise will accelerate and enhance the growth and development prospects of Avanco’s assets,” OZ Minerals chief executive officer Andrew Cole said.
Mr Cole added once the acquisition was completed, OZ Minerals would undertake a review of its portfolio to reduce operating costs and enhance efficiencies.
Avanco’s asset portfolio
What OZ Minerals finds attractive is Avanco’s 1,800 square kilometre landholding in Brazil’s Carajás province.
During 2017, Avanco produced around 14,000t of copper and 11,366 ounces of gold from its Antas mine situated on these tenements.
The mine brought in a gross profit for Avanco in 2017 of $17.24 million.
The Carajás tenements have total resources of 33.21mt grading 1.95% copper and 0.49g/t gold for 645,000t of contained copper and 506,000oz gold.
Avanco also owns 1,370sq km in Brazil’s Gurupi greenstone gold belt.
OZ Minerals’ strategy
OZ Minerals claims Avanco’s assets will help it achieve its 50,000tpa of copper and 100,000oz gold low-cost production targets by 2024.
As part of the acquisition, OZ Minerals will retain Avanco’s in-country Brazilian management and employees and hopes to be making a profit within two years of the takeover.
Copper market fundamentals
As with lithium, graphite, nickel and cobalt, the copper price is back on an upward trajectory, driven by the emerging electric vehicle market.
On average, 80kg of copper is consumed in an electric vehicle, while 20kg is used in conventional vehicles.
BHP Billiton published a recent report identifying limited copper supplies and current resource depletion would result in price hikes.
In December 2016, copper was commanding less than US$6,000 per tonne with the price rising above US$7,000 per tonne by December 2017.
By mid-afternoon trade, Avanco’s share price had shot up more than a 100% to A$0.155.