In its last months of independence, OZ Minerals saw a sharp improvement in performance of its gold and copper businesses in the final quarter of 2022 but a worrying surge in cost pressures.
But it fell short of 2021’s performance and an outcome that apparent from the midyear cuts to guidance because of various problems at its mines in South Australia.
As well the quarter and full year report confirmed the surge in costs the company had to endure in 2022 (and the rest of the mining industry) thanks to sharp rises in energy costs, labour shortages and the continuing impact from Covid.
OZ Minerals report is probably the second last, if it releases a March quarter update ahead of the completion of the scheme of arrangement takeover deal with BHP at $A28.25 a share that, barring no late obstacles, looks like being completed in April.
In its December quarter and 2022 production and exploration report, OZ also revealed it had started work on its $A1.1 billion West Musgrave nickel and copper mine project in Eastern WA.
That’s a bit of a surprise given that BHP’s takeover is looming and starting a billion dollar spend might not fit the acquiring company’s strategy.
But after problems earlier in the year with mining operations at its Carapateena mine in South Australia, delays and reduced processing because of labour shortages and Covid, as well as rising costs, OZ said it got its act together in the final quarter.
OZ said in Monday’s statement that Revised 2022 group copper production and costs guidance was met; gold production was within original guidance, Prominent Hill copper guidance met for an eighth successive year, financial year revenue of $1.9 billion (unaudited) and the highest 4th quarter Q4 group quarterly copper production on record.
“We have also provided 2023 guidance which will see Group production broadly in line with 2022 with improving production at Carrapateena and the Carajás East (in Brazil) being offset with lower production at Prominent Hill due to the processing of lower grade stockpiles compared to 2022,” CEO Andrew Cole said in Monday’s announcement.
A total of 124,065 tonnes of copper were produced last year, within the revised guidance of 120,000 to 135,000 tonnes. 2023 guidance is 120,000 to 143,000.
Gold production was 211,147 ounces compared with guidance of 203,000 to 220,000 and with 2023 guidance fixed in the range of 1891,000 to 213,000. That’s steady for the coming year for gold but compared with the 2021 performance, it’s confirmation of another year of lower output.
OZ Minerals said it produced 125,486 tonnes of copper last year, so 2023 may see that matched or slightly topped. But forecast gold production for this year will again fall short of 2021’s effort.
All In Sustaining Costs totalled $A1.897 a pound in 2022, compared to the original forecast of $1.35 to $1.55 a pound (and the revised estimate of $1.75 to $1.95 a tonne) — 2022’s outcome was 40% higher than the $1.34 a pound outcome for 2021.
The AISC forecast for 2023 is $1.87 to $2.07 a pound, – no rise at best, a small rise of 10% at worst.
In his comments on Monday, Mr Cole acknowledged the cost rises: “Group All-in Sustaining Costs are expected to increase compared to 2022 primarily driven by the full year effect of cost inflation, a stronger Australian Dollar assumption and higher electricity cost assumptions at our Australian assets which have recently come off longer-term contracts and are now operating under market rates and subject to potential electricity price volatility.”
That will be a heads up for BHP to concentrate on after the takeover, as well the commencement of spending on West Musgrave and a lengthy delay in the start of production from the new shaft at Prominent Hill delated to late 2025 instead of the original timetable of the first half of that year.
“A strong final quarter saw a 21 per cent lift in copper production, quarter on quarter, resulting in group production and cost guidance (revised mid-year) being met and creating positive momentum into 2023. Prominent Hill met its original copper guidance for the eighth consecutive year, confirming its reputation as a consistent reliable operation. Pedra Branca mine ramped up to full production ahead of schedule, OZ CEO,” Andrew Coles said in Monday’s release.
“We were pleased with how the team reset and recalibrated performance to end the year on a strong note after a challenging first half impacted by adverse weather, COVID-19 absenteeism, supply chain disruption and inflationary pressure. The December quarter of 36,307 tonnes of copper is the highest group copper production on record.
“We also realised a milestone in our growth strategy with the West Musgrave copper nickel project in Western Australia approved in September 2022 and now in construction.
“The expansions at both Prominent Hill and Carrapateena are well underway notwithstanding some schedule impact, largely due to COVID-19 resourcing reducing expected decline development metres, which will see the Prominent Hill Wirra shaft now ramp up to full production towards the end of 2025 rather than during the first half of 2025 as initially planned.”
“We added a potential new project to our growth pipeline in Q3, securing an option to acquire the Kalkaroo copper project in South Australia pending the outcome of a high level study and drilling campaign which began during the final quarter.
“We also exercised the earn-in option from Vale on the Santa Lúcia copper project, a potential second satellite mine for our Carajás East hub in Brazil. A pre-feasibility study is nearing completion and discussions are well progressed with the Brazil National Economic Development Bank (BNDES) regarding the acquisition of its 50% interest in the project.
The Scheme Booklet for the BHP deal is now expected to be sent to shareholders in early March 2023 with the shareholder vote expected to be held in early April 2023.
OZ shares closed at $27.90 which is meaningless because of the merger deal on the table from BHP.
