Oz Minerals, the result of the merger between Oxiana and Zinifex, continues to have a rough time in the early months of its new life.
It has been hit by the financial markets downturn, the drop in commodity prices, especially for its key metals, lead, zinc and copper, and demand is tumbling as major economies slow, even China.
It’s the world’s second largest zinc mining company and now it is going to cut output at its third biggest zinc mine as much as 40% in 2009 because of the continuing price slump. Zinc prices have fallen 27% so far this year (up until yesterday).
It is the most significant cut to a mining plan yet revealed by a major Australian and global miner.
But it is going to concentrate more on copper, where the supply demand situation is far more favourable, even though prices have sagged with the commodity sell off.
It’s a big call by the newly created company, which earlier in the week reaffirmed that its Prominent Hill metal mine in South Australia would come on stream next month as forecast.
The company denied rumours in the market that billion-dollar Prominent Hill’s start-up would be delayed because of the slump in prices and demand.
In some respects both decisions are confident calls by the new management.
The market took it as a vote of confidence: in yesterday’s terrible sell off, Oz Minerals shares remained steady at $1.38, for most of the day, before rising 5 cents to $1.43.
That price is nothing to cheer about, but it’s interesting that on a day when the wider market tanked the best part of 3% and more, Oz Minerals shares were sort of firm by comparison.
Much of the selling is concentrated in financial stocks and commodity shares were ‘left alone’. After all, they have been singled out for a lot of selling since the downturn started in mid-July.
But gold’s spectacular surge overnight Wednesday (up some $US88 an ounce), oil’s $US6 rise, breaking the weak trend earlier in the week, and some small rises for zinc and other metals, saw resource stocks have a not too tough a day. Gold rose a further $US40 and more yesterday to finish around $897 an ounce.
Oz Minerals said yesterday in a statement to the ASX that it was cutting zinc output at its Golden Grove mining complex in Western Australia and boosting copper output.
CEO Andrew Michelmore said in the statement that "Current prices provide no economic incentive for us to continue to mine zinc at historical production levels. As a result zinc production next year will be cut by about 50,000 tonnes of concentrate.
"At current prices for copper and zinc, our decision to preferentially mine copper over zinc will result in slightly higher revenue levels and more substantially higher profit margins, as copper is a higher margin product for us than zinc,” Mr Michelmore said.
Oz’s move comes as other miners have cut back lead and zinc output.
Perilya has cut deeply into its Broken Hill operations in NSW; one time merger partner, CBH has slashed output and employment at its Endeavour mine in Cobar east of Broken Hill; Teck Cominco Ltd. and Xstrata closed their Lennard Shelf zinc mine in WA in July; AIM Resources stopped work on its project in Burkina Faso also in July and Intec closed its Hellyer zinc mine earlier this month.
There have been cuts in nickel output as well as several mines in WA.
Oz Minerals now says that zinc concentrate production from Golden Grove will run at 80,000 to 85,000 tonnes after the cuts.
Copper output will increase by about 14,000 tonnes to between 35,000 and 40,000 tonnes.
There’s no news on any changes at two other major mining operations: Century in Queensland and Rosebery in Tasmania.
Century produced a record 521,471 tonnes in the year to June. It is a very low cost mine. Rosebery remains in operation.
Earlier in the week OZ Minerals confirmed that its Prominent Hill copper-gold project in South Australia will commence commissioning next month.
"This follows the successful on-time commissioning of the Company’s Avebury nickel project in Tasmania. The first concentrate from Avebury was shipped to customers in August 2008," the company told the ASX.
“We are aware of rumours in the market that there will be delays at Prominent Hill. There is no basis for these rumours, which we believe may be creating a false market in Oz Minerals’ shares”, Mr Michelmore said.
He said the facts were:
•Late last year, Oxiana advised that Prominent Hill would be commissioned in the fourth quarter of 2008;
•Prominent Hill will commence commissioning in October 2008, when the crushing circuit will come into operation”,
"The Company has previously indicated that expected production from Prominent Hill for 2009 is between 110,000 – 120,000 tonnes of copper in concentrate and 80,000 – 85,000 ounces of gold and no changes to this guidance have been made," the CEO told the ASX.
"We have previously announced an expected total capital cost of $1.08 billion for the Prominent Hill project.
“While the final cost won’t be known with absolute accuracy until the project is complete, the Company does not expect it to be materially different from this indication”, he added.
Mr Michelmore said “Prominent Hill will make a substantial contribution to OZ Minerals’ production profile, more than doubling the Company’s annual copper output. We expect copper to generate more than 50% of OZ Minerals’ revenue in 2009, compared to approximately 36% of the combined pro-forma revenue of Oxiana an
