OZ Minerals plans a significant expansion into South America through a takeover of Brazilian-focused copper-gold miner and developer Avanco.
Adelaide-based OZ, which launched the offer today, believes an acquisition of Avanco would immediately add to its copper production profile and provide expansion options in Brazil’s Carajás copper province and Gurupi gold belt.
Avanco owns several copper assets in Brazil, including the Antas mine and Pedra Branca project. In January, Avanco bolstered its Brazilian copper portfolio by securing a deal to acquire the Pantera project from local major, Vale.
Perth-based Avanco also owns the CentroGold project, considered to be one of the largest undeveloped gold projects in Brazil.
In an ASX announcement, OZ described the combination of its strong free cash flow generation and balance sheet position with Avanco’s suite of high-grade, high-growth assets as compelling.
OZ’s offer proposes that Avanco shareholders will receive 8.5 cents in cash and 0.009 of its stock for every one of the target’s shares. The bid values Avanco at $444 million.
Andrew Cole, OZ chief executive officer, said acquiring Avanco aligned with the company’s multi-asset, province-focused growth strategy.
“Not only does it immediately contribute copper tonnes to our production profile, it offers significant additional new growth options and meaningful footprint in the highly prospective Carajás province, as well as the Gurupi greenstone belt in Brazil,” he said.
Avanco managing director Tony Polglase said the offer was at a significant premium to recent trading levels and provided its shareholders with an attractive opportunity to crystallise value, while maintaining base metals exposure through their holding in OZ.
“The combination of OZ Minerals’ robust Australian asset portfoilio, experienced team and strong balance sheet with Avanco’s largely undeveloped, high quality Brazilian asset portfolio provides for a promising future for the combined entity and its shareholders,” Polglase said.
The acquisition would provide OZ with a potential organic pathway to seven mines — Prominent hill, Carrapateena, West Musgrave, Antas, CentroGold, Pedra Branca and Pantera — in the next six years.
Cole added that OZ was confident that the two companies were culturally aligned.
“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,” Cole said.
“On completion of the transaction, we will undertake a business execution review to hone our pathway to optimising the portfolio, improving operating costs to position the business in the bottom half of the cost curve and accelerate growth.”
OZ will require a minimum acceptance of the deal from 50.1 per cent of Avanco’s shareholders to complete the acquisition. It plans to send bidder’s and target’s statements to Avanco shareholders next month.
The miner has already entered into a pre-bid acceptance deed with Appian, Avanco’s largest shareholder, for 18.45 per cent of the target’s shares.
Rebecca McGrath, OZ chair, described Avanco as a good strategic fit that would diversify the company’s portfolio and add to its organic growth pipeline with development and exploration opportunities in the Carajás province.
“Brazil is a stable jurisdiction that is supportive of mining with a reliable mining code. Avanco is a disciplined acquisition representing approximately 16 per cent of OZ Minerals’ market capitalisation,” McGrath said.