KKR Increases Copper Bet as Rout `Good Time' to Buy OZ Stake

  • OZ has Australia's biggest undeveloped copper deposit
  • Copper long-term outlook attractive on supply constraints

KKR & Co., the private equity firm run by billionaires Henry Kravis and George Roberts, raised its stake in OZ Minerals Ltd., owner of Australia’s biggest undeveloped copper deposit, seizing on a commodities rout that’s sent prices tumbling. The producer’s shares rose the most in 14 years.

“We thought it was a good time to accumulate exposure to OZ Minerals shares given the environment," Steven R. Okun, public affairs director at KKR Asia Pacific said Thursday in an e-mailed statement. OZ Minerals "is a good company that was undervalued in the public markets when we made our investment," he said. KKR has been successful in seeking a 10 percent interest in the copper producer, Okun said.

Adelaide-based OZ Minerals rose 19 percent in Sydney trading, the most since April 2, 2001, to close at A$3.95. The producer had tumbled 33 percent from a May high to the Sept. 30 close as copper prices plunged.

“That kind of increase tells you that the market expects there is the real possibility of a takeover,”  Evan Lucas, a market strategist at IG Ltd. in Melbourne said by phone. “If not by KKR, then by another party. Or some attempt to split out the good assets.”

Board Seat

KKR is likely to push for a board seat, according to Lucas. “Once they get on the board, they can really start throwing some punches,” he said.

Thorpe Holdings Ltd., a KKR affiliate, has made on-market purchases of OZ Minerals stock and also agreed a cash-settled equity swap with Deutsche Bank AG equivalent to about 4.99 percent of the copper producer’s shares at an average price of A$3.577 a share, according to an exchange filing.  That’s an 8 percent premium to Wednesday’s close.

Commodity prices have tumbled and a Bloomberg index of 22 raw materials touched the lowest since 1999 in August amid forecasts for the slowest economic growth since 1990 in China, the biggest user of energy, metals and grains. 

While copper prices touched a six-year low in August, a global scramble for projects and mines is underway ahead of forecast supply shortages, OZ Minerals Chief Executive Officer Andrew Cole saidin an interview. A decline in grades at existing global mines will collide with a lack of new projects triggering a deficit from about 2018, BHP Billiton Ltd. told investors Aug. 25.

“Copper is one of the commodities that has a more attractive long-term outlook,” said Sydney-based Wilson HTM Investment Group analyst Phillip Chippindale, who rates OZ Minerals as a buy. “The demand fundamentals are reasonably sound and the supply curtailments that are expected over time are reasonably well known, so that gives some confidence over the long-term picture.” 

Asset Hunt

KKR has controlled Australian mining services and logistics BIS Industries Ltd. since 2006, according to its website. OZ Minerals welcomes KKR’s investment, Chairman Neil Hamilton said in a statement.

OZ Minerals said in January it was prepared to examine offers for assets or the company, and is also undertaking a global search to add precious to base metals assets. The company expects to meet the upper end of full-year output guidance of 110,000 to 120,000 metric tons of copper from Prominent Hill, its only producing asset, it said Aug. 12.

KKR may see value in separating the Prominent Hill mine from the producer’s Carrapateena project, according to Rob Brierley, a Perth-based analyst at Patersons Securities Ltd. Carrapateena is forecast to produce as much as 114,000 tons of copper a year with a mine life of more than 20 years, and OZ Minerals has said it will need a partner to share the A$3 billion ($2.1 billion) development cost.

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