Bear market valuations of miners have been highlighted as US investor Kohlberg Kravis Roberts snapped up a 10 per cent stake in Oz Minerals Thursday, as the investor doubled its stake in the company which prompted a near-20 per cent surge in the target's share price.
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Oz Minerals is seeking to meet KKR officials as soon as possible to clarify their intentions towards the miner.
KKR is believed to have picked up a block of 14.75 million Oz Minerals shares which were traded Thursday at $3.60. Prior to those purchases, it is understood KKR held about a 5 per cent stake in Oz Minerals.
Oz Minerals shares surged on the KKR purchase to close up 19 per cent at $3.95, just off the day's high of $4.
"We think that Oz Minerals is a good company that was undervalued in the public markets when we made our investment," KKR said in a statement. "We thought it was a good time to accumulate exposure to Oz Minerals shares given the environment. We went out seeking an interest in 10 per cent of the stock at a certain price and were successful in doing so."
The purchase by KKR comes hard on the heels of the collapse in the share price of Swiss miner and commodity group Glencore, which is labouring under a heavy debt burden, forcing it to sell assets. It also comes amid heightened analyst focus on oversold miners which represent value for longer-term investors.
"The market has been waiting for a catalyst like this to come along," Bell Potter analyst David Coates said. "Private equity has been sitting on the sidelines and KKR buying in has been the catalyst the market has been waiting for."
Even with the surge in the Oz Minerals share price Wednesday, Bell Potter's Coates said its shares still represent "good buying" and he has a $4.55 target price, which is well short of the $5 pencilled in by analysts with Morgan Stanley and GMP Securities.
Mid-tier miners such as Sandfire Resources and Western Areas with no or negligible debt, strong management and low cost operations are also worth looking at, analysts said. Shares in Sandfire rose 7.6 per cent Thursday to $5.80 with Western Areas closing ahead 5.6 per cent at $2.27.
Even though the price of copper has fallen sharply over the past year in US dollar terms, in Australian dollar terms, it has been stable at around $330 a pound. And, with an estimated 80 per cent of Oz Minerals' costs denominated in the local currency this gives earnings an automatic hedge to the rise in the US dollar.
Additionally, Oz Minerals is assessing prospects for the proposed Carapateena expansion, using technology which will lift recoveries and reduce impurities. The final decision on this expansion is due within six months, with optimism it will pursue a cheaper development targeting a higher grade portion of the deposit which would have a faster payback.
Mid-year, when Oz Minerals ruled off its accounts for the June half, it had $409 million in cash on its balance sheet, up from $218 million six months earlier, with no debt.
