OZ Minerals (OZL) has replied to the raid on its share register last week by the KKR private equity mob by proposing to spend $1 billion on a development at its huge copper and gold deposit at Carrapateena in outback South Australia.
Coming at a time when copper miners are under pressure (for example Freeport McMoran and Glencore) from investors who see a continuing surplus for the metal thanks to a slide in demand from China and other Asian nations (world prices are down 20% so far this year).
Many analysts claimed the KKR raid last week was a sign that market unhappiness with copper miners was overdone and that this was the start of some ’bottom fishing’ by more aggressive investors, such as private equity and hedge funds.
Now OZ will test that belief and the patience of KKR and its investors by proposing this still massive development in South Australia’s remote outback.
OZL 1Y – OZ Minerals mounts KKR defence
The Carrapateena project was supposed to cost $3 billion to build according to the feasibility study conducted by OZ in 2014, but the company surprised the market yesterday morning with plans for a smaller, lower cost move to mine only the shallowest, highest grade parts of the deposit. That, OZ claims, could be done for less than $1 billion.
That would in turn allow OZ to generate cash from the project sooner than previously thought, and could be developed by IOZ alone, not with the help of a partrner, as was envisaged under the existing plan.
OZ CEO, Andrew Cole said yesterday "The high grade option has the potential to kick start the development of this very large resource. Importantly, if this scoping study is successful, it could see greater shareholder returns generated sooner," he said.
The company will now conduct a scoping study on plans to build a 3 million tonne per year mine, and will report back in the March quarter of next year.
The original feasibility study considered a bigger block cave mine that produced 12.4 million tonnes per year and ran for 24 years.
OZ shares rose 1.5% to $3.98 yesterday – more due to the buoyant conditions on the wider market than a vote of confidence in the new plan.
