OZ Minerals did its defence against BHP’s $25 per share offer no favours yesterday with the second full-year downgrade in the space of a quarter.
At the same time as the downgrade in gold output to go with the cut in copper guidance in late June, OZ Minerals confirmed the company had seen a surge in costs thanks to the combination of inflation, Covid restrictions earlier in the year, higher energy costs and lower throughput.
The company cut its gold production estimate for the financial year ending December 31 because of lower grades at its Prominent Hill mine.
Expected gold output this year will be 203,000-220,000 ounces, down from the 208,000-230,000-ounce estimate made at the start of the year.
“Gold production to be lower in Q4 with reduction in volume of gold stockpiles to be processed at Prominent Hill to improve plant performance; reducing by-product credits and impacting unit costs,” the company confirmed in the third quarter report to the ASX yesterday.
It was only four months or so ago that it cut its 2022 copper production forecast because of operational problems at Prominent hill and especially the Carapateena mine (both in South Australia).
That new forecast of 120,000 to 135,000 tonnes (the original was 127,000 to 149,000) was unchanged yesterday.
The particular forecast update, made on June 27 seems to have opened the way for BHP to launch its offer at $25 per share which OZ has strongly resisted with the price of the shares above that level.
But yesterday saw the shares open under that level at $24.67 and while they quickly rose to around $25.62, they did drift lower to around $25.11 by the close.
That price of $24.67 was in fact the lowest the shares have been since BHP revealed its offer on August 8.
Analysts wondered if the downgraded gold production guidance has weakened management claims that OZ is doing well as an independent.
The company made a big play of pointing out that Carapateena was getting over its earlier woes (“Carrapateena efficiency and reliability improving month-on-month”) and that Prominent Hill was also on the up (“Prominent Hill momentum building through September and into Q4”).
“The third quarter has seen steady improvement in our operational performance and a major growth milestone has been achieved with a positive investment decision for the West Musgrave Project which will commence on ground construction next month,” CEO Andrew Cole said in the report
“Our major operations, Carrapateena and Prominent Hill, are seeing the results of improvement programs implemented to address a disrupted first half following COVID absenteeism, underground conveyor breakdown and supply chain interruptions which impacted site operations and production. Carajás East continues to deliver production to plan as it has done throughout the year.
“A return to better production performance has seen month on month improvements at Carrapateena. Mining performance continues to improve, driven by our focus on continuous material flow and equipment availability. Processing remains unconstrained for the ongoing throughput uplift in Q4.
“At Prominent Hill, performance improvement and operational consistency returned late in the quarter, with September recording the highest underground ore movement month on record (5.0Mtpa run rate) after COVID-related operator and maintainer shortages persisted in July and into August. Mining rates and development improvements experienced in September have continued into Q4.
“With continued improvement to underground operations, higher copper grade stopes coming online in Q4 and reduced mill feed to improve plant performance, a material improvement to copper metal production is expected. This strategy will however result in lower gold production with a lower portion of gold stockpile feed to be milled during the quarter and we now expect full year gold production to be within the lowered gold guidance range.
OZ Minerals also revealed that it had set up a $1.2 billion funding arrangement for the West Musgrave copper nickel project in far eastern WA (near the South Australian border) and that in doing so, was looking at the possibility of bringing in a minority partner.
“Financial close under the syndicated debt facility is expected by the end of October 2022. The syndicated debt facility allows the Company to maximise stakeholder value by commencing development while optimising the final funding mix which may come from a range of sources.
“Following significant in-bound interest received over the past six months we have commenced a process to explore the potential to sell down a minority interest in the project to a strategic partner as part of a strategic alliance. These multiple sources of funding options support our capacity to fully fund development of the Project.”
BHP was conspicuous by the absence of any mention of its $25 per share offer or interest in Mr Cole’s comments.
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Meanwhile Newcrest Mining says all mining and processing operations at its Brucejack mine in Canada, have been suspended until further notice after what it called a critical incident involving a worker from its mining and development contractor, Procon.
Newcrest said the incident occurred on Saturday and that the mine rescue team “is in the process of determining safe entry into the incident location.”
It didn’t elaborate further but said an investigation is underway.
Newcrest was due to report its September first quarter production and exploration data on Thursday.
