On the face of it the latest quarterly report from Oz Minerals had good news – the company looks like its on track to meet this year’s guidance for gold and copper production, the company is well advanced on its expansion at its Prominent Hill mine in South Australia, work on the new mine at Carrapateena, also in the state, is well advanced, and the company lifted its cash holdings back past the $600 million mark.
The latest report (https://www.ozminerals.com/uploads/media/170725_OZ_Minerals_June_2017_Quarterly_Report.pdf) shows that “a strong second quarter saw Prominent Hill produce 28,163 tonnes of copper and 32,136 ounces of gold. Production has continued in accordance with the mine plan and remains on track to achieve guidance.”
For the six months to June 30 production of copper was 53,242 tonnes, while gold output was 58,271 ounces. That left the company well placed to meet its 2017 guidance of 105,000 to 115,000 tonnes of copper and 115,000 to 125,000 ounces of gold. But there was no comparison with the first two quarters and half of 2016.
So digging out the June quarter production and exploration report for 2016 (https://www.ozminerals.com/uploads/media/OZL_Q2_ASX_Quarterly_Release_FINAL_220716.pdf) you find that the last half year performance wasn’t as good as you might have believed.
Copper production totalled 58,368 tonnes in the six months to June 2016 (making the June 2017 performance a fall of more than 9%) and gold production was 57,662, around 600 ounces less than the figure for the June 2017 half year.
The June 2017 production report made no reference to the performance with the first half of last year.
“Strong production and lower costs quarter on quarter see us tracking positively towards achieving annual guidance. The Prominent Hill mine plan has production ramping up in the latter half of the year, supported by completion of the second permanent decline expected in late August,” the company said.
“Operating discipline at Prominent Hill is yielding improvements to underground operations with a 17 per cent increase in production quarter on quarter, driving productivity and reducing costs.
“At Carrapateena, the boxcut for the second parallel decline is nearing completion with the decline scheduled to break through in late August. Underground development is advancing both declines, which is improving overall development rates. A further update on Carrapateena is expected in Q3.
“Studies on the Concentrate Treatment Plant are progressing, with the project now being managed separately and to a different time line to Carrapateena.
“The quarter ended with a cash balance of $625 million, up from $594 million at the end of Q1, achieved after a $22 million investment in the Carrapateena project, $20 million addition to ore inventory and $69 million tax payment.
“Payable copper and gold volume increases saw All-In Sustaining Costs (AISC) and C1 costs materially lower than the prior quarter, with both remaining on track to meet annual guidance,” directors said.
"Shipments of Prominent Hill concentrates for the quarter totalled 72,458 dry metric tonnes, containing 32,927 tonnes of copper, 38,006 ounces of gold and 265,295 ounces of silver.
"The gold hedging strategy implemented in April 2016 was extended by another 17,500 ounces during the quarter, bringing the total amount of gold hedged to 236,933 ounces at an average price of A$1,760/oz. Full exposure to the spot gold price continues to be maintained until mid-2018.
"C1 cash costs of US 81c/lb and AISC of US 115c/lb improved over last quarter due to more payable copper and gold produced and less mining expenditure. C1 and AISC remain on track to meet annual guidance.
“C1 costs were lower, predominantly due to more copper and gold produced (higher grade and recovery) and lower mining costs with the open pit demobilisation,” directors said.
"The ramp up in production over the prior quarter was driven by an increase in underground ore mined. The second permanent underground access decline is on schedule for breakthrough in late August, which will assist the underground ore production ramp up through the second half of the year,” the company explained.
So what does the fall in copper mean for the first half profit? Hard to say, because it depends on average prices and costs and the amount of hedging. But without digging out the the June 2016 quarter report and the first half figures contained in it, a meaningful assessment of OZ Minerals June half year performance could not have been made.
The shares fell nearly 1.5% to $7.37.
