OZ Minerals has attempted to offset negative coverage of its weak first half result and its rejection of BHP’s $25 a share bid by revealing plans to more than double its copper production over coming years.
OZ brought forward its half year results from Monday to Friday in an attempt to convince its investors that it had a good story to sell and avoid takeover by BHP.
OZ said its new growth phase would enable it to lift copper equivalent production from approximately 140,000 tonnes (actually 122,000 to 135,000 this year after cutting guidance from 127,000 to 149,000 range).
OZ sees it boosting copper output to more than 340,000 tonnes through brownfield expansions at existing mines and extend mine life, and through greenfield developments such as the West Musgrave copper-nickel prospect in eastern WA (near the South Australian border).
That $1.1 billion project is supposed to be be considered for a final go-ahead decision in the next few months, but if BHP gets control, it won’t go ahead given BHP has Olympic Dam and the smaller version of that deposit at Oak Dam, both in South Australia.
OZ has already cast some doubt on West Musgrave because of costs and a shortage of labour for the development work before mining starts in a couple of years.
OZ Minerals CEO Andrew Cole was upbeat on Friday with a new buzz phrase for the company’s independent future — a “strategy of modern minerals” to describe the company’s approach from this point on.
“We’ve spent the past seven years creating the company we have today with an abundance of choice and growth options, enabled by a track record of strong operational performance, project execution and prudent capital management,” he said.
“We have evolved from a single open pit mine to three operating assets in two countries with expansions underway, and we are now developing these assets at speed into multi-generational mining provinces.”
OZ engaged CRU Group to examine future demand and the third-party forecaster found that 6.4 million tonnes (Mt) of new copper supplies will need to come online by 2035 to meet demand.
“This is equivalent to approximately one third of the total copper market today that needs to come online within 15 years, when the average discovery to mine development period globally is 17 years,” OZ said in a statement.
OZ wants to play its part in this ambitious future independently.
“The world is on the cusp of a significant deficit of key modern minerals at a time when demand will rapidly intensify,” Cole said.
“Clear comparisons can be drawn between the age of electrification and decarbonisation that we’re entering and the decades-long iron ore super-cycle that resulted from the industrialisation of China, but this time it is a global phenomenon.”
“OZ Minerals is uniquely placed to capitalise on the growing demand for the modern minerals that are integral to this multi-decade electrification and decarbonisation transition, which is only just getting started.”
But then the same comments could be made about BHP, which is a global major and has the world’s biggest single mine – Escondida in northern Chile – as well as two other mines or investments in copper in that country as well as Olympic Dam in Australia.
BHP CEO Mike Henry has driven his company’s renewables strategy by betting more on copper and nickel (especially in WA and Canada for the latter).
OZ Minerals also revealed the weak first-half results it brought forward to Friday from Monday.
Interim dividend of 8 cents per share is down from 16 cents for the first half of 2021 (which included a special payment of 8 cents per share after earnings were boosted by very high copper prices).
The reason for the effective halving of the dividend was the slide in after-tax earnings from $268.6 million in the first half of 2021 to $109.2 million in the six months to June, 2022.
And the company blamed that slide on the impact of rain and flooding, equipment disruptions at the Carapateena mine in South Australia and the impact of Covid labour disruptions that continue to hit the industry. They forced a cut in copper production and gold output and a lowering of guidance for the year.
First half revenue fell $77 million to just on $908 million for the June 30 half this year and EBITDA slumped to $358 million from $561 million, despite a brief jump in world copper and gold prices from late February through May in the wake of the Russian invasion of Ukraine on February 24.
Mr Cole said in the results release “A challenging first half affected by sustained COVID absenteeism and one-off weather and equipment interruptions is reflected in a first half net profit of $109 million on net revenue of $909 million. Profit was also impacted by industry-wide inflationary pressure and weaker market conditions towards the end of the Half.
“We are now regaining operating momentum at both Prominent Hill and Carrapateena with improvement plans gaining traction supported by considerably lower absenteeism, resulting in fewer shift losses and improved equipment availability.
“Combined with an increased movement of the cave at Carrapateena, these green shoots have increased our confidence in a stronger second half performance and we remain on track to meet our group annual production and cost guidance.
“The quality and high margin nature of our assets provided a healthy operating margin of 40% and robust operating cashflow during the half. We continue to invest in and advance our unique organic growth pipeline to take full advantage of the growing long-term demand for copper and nickel, driven by global electrification and accelerated decarbonisation,” Mr Cole said.
If only BHP can be held at bay – the OZ share price remains well over the $25 a share offer price around $26.39. There’s obviously some inspired buying at this level.
Investors look at the way Rio Tinto was forced to up its offer for Turquoise hill to $C40 a share from $C34 as it attempts to get a bigger stake in a huge copper gold mine in Mongolia.
But OZ Minerals is not in the same position with BHP as Turquoise Hill is with Rio, although there are considerable efficiencies in South Australia and in BHP’s copper business.
