Oz Minerals (OZL) yesterday revealed plans to boost copper production over the full year and lift waste removal operations – which saw the shares rise 18c to a day’s high of $4.49, before they turned lower and closed down 0.2% at $4.30. They had been as low as $4.215 during the early afternoon.
For Oz Minerals, the market reaction was a little puzzling – the early strength in the share price (the production report was released prior to trading started) looked justified by the surprising news of the small rise in expected copper output for the year and a promising fall in costs in the quarter.
Copper production for the June quarter was up on a year ago and even though the company’s cash balance has more than halved to just over $150 million from $364 million at the end of 2013, Oz Minerals had explained why that would happen – increased exploration and development spending and dividends paid to shareholders.
The company also said yesterday it has around $90 million of copper concentrates on its books to sell, which will help cash flows over the next six months or so.
OZL 1Y – Oz Minerals lifts copper production
Oz said it produced 22,181 tonnes of copper in the quarter, up from the 18,182 produced in the three months to March (which had been a disappointment to the market). But quarterly gold production fell to 30,736 ounces from 33,792 in the three months to March.
The company had originally promised to produce between 75,000 and 80,000 tonnes of copper in the year to December 2014, but will now produce between 85,000 and 90,000 tonnes from its major asset, the Prominent Hill in South Australia.
Gold production is expected to be towards the lower end of the company’s 130,000 to 140,000 ounce range for the year to December.
"As a result of a higher proportion of copper ore and lower proportion of gold-only ore expected in the mill feed for the remainder of the year, while annual production guidance of 130,000oz to 140,000oz is maintained, it may be towards the lower end of this range," the company said in its quarterly statement.
The company said it produced more than 40,000 tonnes of copper and 64,600 ounces of gold during the first half of the year.
That was all pretty unsurprising. What some investors and analysts are now worried about was the explanation given by management for an expected extra spending on waste removal.
Oz has spent the past year shifting large amounts of waste rock in a bid to reach more prospective ores below at Prominent Hill, and the miner said yesterday it had found a more productive way to move the waste, which would achieve cost savings over the full life of the mine.
The savings will come by spending more money to remove waste over this year (some $25 to $30 million more than previously revealed).
The company will attempt to remove as much waste this year as it would in the subsequent years from 2015 to 2018.
The decision to spend more on waste rock removal this year will mean the company will no longer be cash flow neutral in 2014, as previously promised (although a surge in copper prices this year might help change that situation).
Oz management is arguing the extra spending will mean lower removal costs over the three years from 2015, and lower operating costs.
"This increased material movement is expected to yield significant cost savings for total material movement over the remaining life of the open pit,” the miner said its June quarter results today.
The company showed it can cut costs (as it promised earlier in the year after an unexpected rise).
It told the market yesterday that cash costs fell in the June quarter to just under $US1.10 per pound, well below the $US1.22 per pound achieved in the March quarter.
Oz continues to work on a pre-feasibility study on the copper deposit that should become its next mine – the Carrapateena deposit in South Australia. It is still looking for partners for that project.
The outlook for the Carrapateena development has been improved by promising resource data for the Khamsin deposit, only 10 kilometres away.
OZ said in late May the initial Mineral Resource estimate as at March 23 for Khamsin was 202 million tonnes of ore at 0.6% copper, 0.1 gram per tonne of gold. "A scoping study will be completed over the remainder of the year to consider, at a high level, the potential feasibility of integrating the Khamsin deposit into the Carrapateena project," the company said yesterday.
