OZ dampens hopes - again

It is difficult to imagine a company more adept at wealth destruction than OZ Minerals (OZL) and so it was little wonder speculators relished the possibility the company this morning was a takeover target.

Unfortunately, OZ has since poured cold water on their hopes, which has become something of a pattern at the ill-fated company.

Ever since the controversial merger between Oxiana and Zinifex in mid-2008, the company has burnt through a sizeable portion of its cash balance, endured a series of humiliating disasters and sold the bulk of its operations to the Chinese government for a song.

Adding insult to injury for long suffering shareholders, its most recent results were far worse than anyone anticipated and the year ahead has been described by the board as "difficult".

So why on earth would Glencore Xstrata's Ivan Glazenberg be interested in a takeover? UK reports over the weekend suggested the London based miner and commodities trader had assembled a "secret" 10% holding in OZ and was preparing a bid.

If there is any truth to the speculation, it could well be that Glazenberg believes this is about as bad as it could get for OZ, making it an ideal time to pounce. And with some analysts expecting copper prices to bounce in 2016, just as Carrapateena in South Australia is ramping up production, the company may well represent good value for an acquirer.

An added attraction is that half its market capitalisation is accounted for in cash and liquid assets.

But Glencore Xstrata faces significant hurdles with a bid for OZ Minerals.

Apart from the legal aspect of having to declare a substantial holding above 5%, there are a number of other legal impediments, not the least of which was a commitment to the Chinese Government to reduce its exposure to copper as a condition for Glencore's merger with Xstrata.

Still, those technicalities didn't deter the punters. OZ Minerals' share price spiked 6% this morning to $4.70 before shedding most of the gains after OZ announced it had received no offer from Glencore Xstrata, nor any notice of it being a substantial shareholder.

While it is entirely possible that a stake has been assembled using derivatives, and in a manner that would not trigger substantial shareholder disclosure rules, there appears to be no major spike in trading volumes since late May during which time the share price has bounced between $4 and $4.50.

With Prominent Hill – OZ's only operating mine – nearing the end of its productive life, the miner's long term hopes rest with Carrapateena, which is currently under development and draining the company of cash.

Unfortunately, OZ has long appeared to be at the bottom of the trough. After selling all its assets, bar Prominent Hill, to the Chinese Government in July 2009, the company had more than $1 billion on its balance sheet that was earmarked for acquisitions and expansions (see Tim Treadgold's article). Less than half that remains.