Sometimes you just can’t pick the market – not shares – but the reaction investors give to company reports.
The big plunge we saw on Monday for Boral shares was understandable given the weak outlook the company provided. That was a shock, the interim report from OZ Minerals contained no shocks, hence the solid rise in the share price.
In fact, the price of OZ Minerals shares jumped nearly 5% yesterday despite the company reporting a weak interim profit and continued big investment spending on new mines and prospects.
Spending and investment are usually seen as a ‘no-no’ by many investors because they stupidly think capital is being diverted away from them, instead of understanding that its investment is all about the future and future capital and income gains.
So the OZ shares price ended at $9.33, up 4.6% after the miners’ interim net profit fell by two-thirds from the June half of last year to $43.9 million.
There an explanation and the second half looks good because of timing differences in ore sales at the end of the half which will boost the six months to December.
The big drop in earnings in the first six months to end of June was due to the delays in copper and gold ore shipments into the September quarter, a slight dip in the Australian dollar copper price and that increase in Capex.
And interim dividend was held steady at 8 cents a share meaning that investors were able to be satisfied about a solid income return, as well a signal that the board understood cash outflow had been conserved given the heavy investment spending and the unpredictable global atmosphere.
“Strong ongoing cash generation and undrawn debt facilities of $300 million have continued to provide liquidity and flexibility in executing the growth strategy and allowed shareholders to be rewarded with a fully franked interim dividend of 8 cents per share,” OZ said yesterday.
Just as important was the absence of any surprises – OZ’s main mine Prominent Hill continues to run along without a fuss while the Carrapateena project (Both mines are in South Australia) is also on track to deliver its first sales towards the end of the current half and within the budgeted cost of just under $1 billion.
That’s what the company indicated in the July half-year production report and the lack of any problems yesterday was appreciated by the market.
“Significant progress was made at Carrapateena with above-ground construction nearing completion and over 100,000 tonnes of development ore stockpiled,” CEO Andrew Cole said yesterday.
“The project is expected to deliver first saleable concentrate in November for a capital cost of A$920 million-A$950 million, with 2019 Growth Capital Expenditure of A$540 million-A$570 million continuing to track to guidance.”
OZ also hinted about more news about the future of its West Mulgrave project over the next six months as it progresses its pre-feasibility study, which should be completed by early 2020.
“The outlook for revenue is positive with 2019 production tonnes committed for the remainder of the year and smelter demand rebounding strongly in the second half,” said Cole about the company generally.
“Underground production rates at Prominent Hill continue to improve and costs are currently expected to finish the year at the lower end of guidance.”
