Oz Minerals (OZL) says it plans to increase its focus on processing copper ore versus gold in the years ahead, betting on the continuation of better prices for an industrial metal than gold which seemed to be the earlier focus.
According to CEO, Andrew Cole “As we head into 2017 OZ Minerals is leaner and more agile with diverse opportunities ahead.”
“Copper guidance provided last year is confirmed for 2017 and production estimates have been lifted by a total of 30,000 tonnes through to 2019. Gold production guidance has been lowered as we prioritise copper given its stronger margins.”
The company in fact confirmed its copper output target for the current year and lifted its targets for the next two years in its December quarter and 2016 production report.
The miner says it produced 29,758 tonnes of copper in the December quarter, taking its annual output for 2016 to 116,882 tonnes, despite the statewide blackout in South Australia resulting in 15 days of lost production at its Prominent Hill mine.
OZ confirmed its production target of 105,000 to 115,000 tonnes for 2017, and said it expected to lift output by a total of 30,000 tonnes in 2018 and 2019.
It lifted its 2018 projection to 90,000-100,000 tonnes from 85,000-95,000 tonnes.
And it is also now forecasting copper production of 90,000-100,000 tonnes for 2019, up from an earlier estimate of 65,000-75,000 tonnes.
The Adelaide-based miner reported copper output fell and gold production rose on-year in the final quarter of 2016.
But annual production of both met earlier company forecasts. Oz Minerals said gold production totalled 32,205 troy ounces for the three months through December, up 2.1% on a year ago, taking 2016 output to 118,333 ounces. That was in line with an earlier company estimate of 115,000-120,000 ounces. Quarterly copper output totalled 29,758 tonnes, it said.
That was down 8.8% on-year. But 2016 copper output of 116,882 tonnes was within an earlier projected band of 115,000-125,000 tonnes. Meantime, the company has trimmed its gold output guidance for 2017 to 115,000-125,000 ounces, from 125,000-135,000 ounces.
It expects to produce 120,000-130,000 ounces in both 2018 and 2019, down from prior forecasts of 140,000-150,000 ounces and 150,000-160,000 ounces, respectively. “Prominent Hill demonstrated its operating discipline delivering on copper guidance in the face of a major state-wide power outage which resulted in 15 days of lost production during the second half of 2016,” CEO Andrew Cole said in yesterday’s release.
“Prominent Hill mine life has been extended following a 40 per cent increase in underground Ore Reserve, confirming it as a long life asset. In Carrapateena we have one of the few proposed new copper mines globally with work starting on the access decline at the end of September 2016 and proceeding to plan.
“With a further two earn-in agreements signed in the last quarter we now have six separate joint ventures in place with experienced exploration companies to identify potential new opportunities.
“The company’s cash position is robust and grew 29 per cent quarter on quarter to $656 million. We continue to take a rigorous approach to capital discipline with C1 costs for 2016 within our guidance range and annual procurement cost savings of more than $40 million achieved,” he said.
Revenue in 2016 hit an estimated $820 million, it said in yesterday’s analysts briefing. The buoyant copper price means it expects to begin paying tax so that from 2017 dividends will be franked, it told analysts. OZ shares eased 0.8% to $9.08 yesterday, despite some histrionics from analysts who won easy headlines by downgrading the shares.
According to Fairfax Media Argonaut Securities put a "sell" recommendation on the miner’s shares and Morgans a "reduce". "We think that Oz Mineral’s recent +50 per cent re-rating has been driven by generalist demand for large, liquid, high margin copper exposures amid rising copper prices and new exuberance for global growth," Morgans analyst Tom Sartor told clients. “Such exposures are scarce on the ASX, helping to explain the premium."
Meanwhile Newcrest (NCM) is staying with gold (naturally). The company left its production guidance for the full year unchanged despite flat production in the December quarter.
Newcrest says it still expects to produce 2.35 million to 2.6 million ounces of gold and 80,000 to 90,000 tonnes of copper for the 12 months to June 30, 2017 – in line with guidance provided in the September quarter.
The miner produced 614,715 ounces of gold in the three months to the end of December, down slightly from 615,498 ounces in the September quarter. But production from continuing operations was up 2%. Newcrest sold its 50 per cent stake in the Hidden Valley mine in Papua New Guinea in the September quarter of 2016.
Copper production rose 6.1% to 25,176 tonnes in the December quarter, from 23,723 tonnes in the prior quarter.
Newcrest said in the December report that it had cut production costs by 4.9% an ounce in the December quarter.
But margins fell 11.1% as a result of lower gold prices (they have since recovered a little int early 2017).
Chief executive Sandeep Biswas said in the December report that the mill at the Lihir mine in Papua New Guinea processed a record 13 million tonnes of ore, and the mill at the Cadia mine near Orange in NSW was processing ore at an annualised rate of 24.6 million tonnes – up six% on the previous quarter. "These achievements and efforts by all our operations contributed to a five per cent decrease in Newcrest’s all-in sustaining cost per ounce, and an increase in production from our continuing operations," Mr Biswas said.
Newcrest said production at its Telfer mine in Western Australia was impacted in January by significant rainfall temporarily flooding one of the pits, but production was still on track to meet full-year guidance.
Newcrest shares were 1.7% higher at $21.45.
