For years, big mining companies have typically shied away from making large acquisitions, having paid the price for being overly aggressive at the top of the last commodities cycle a decade ago. They spent too much money just at the point when commodity prices peaked, resulting in significant asset write-downs and too much debt.
A greater focus on operational efficiencies and organic growth has seen firms in the mining business reduce debt, pay out generous dividends to shareholders, and become leaner entities.
“With commodity prices having soared in recent years, there is now a stronger temptation to start doing big deals once again. BHP has finally caved in with an attempt to buy OZ Minerals,” said AJ Bell’s Russ Mould.
“Its near-$6 billion offer makes sense strategically – adding more copper and nickel to its portfolio, thereby making the group even more relevant to customers wanting the metals needed to build electric vehicles and renewable energy projects.
“However, OZ Minerals knows BHP has deep pockets and that its own projects could be worth a lot more in the future, so it has been quick to reject the bid.
“Mining giants typically get what they want, but that sometimes comes at a price – namely, the risk of paying too much for acquisitions.
“It will be interesting to see if BHP shows restraint in its pursuit of OZ Minerals and the extent to which it is willing to continually throw more money on the table. History suggests that it is going to be difficult to avoid as miners have form for splashing the cash once they’ve made up their mind over an acquisition target.”