Company Overview - OZ Minerals Limited is an Australia-based mining company with a focus on copper. The Company's principal activities are mining of copper, gold and silver, carrying out exploration activities and development of mining projects. The Company owns the Prominent Hill copper-gold mine and Carrapateena copper-gold project, both situated in South Australia. The Prominent Hill consists of the Malu Open Pit, Ankata Underground mine and the Malu Underground mine. The Prominent Hill is engaged in the sale of concentrate products containing copper, gold and silver to customers in Asia, Europe and Australia. The other activities of the Company include its Group Office, other investments in equity securities and exploration projects, including Carrapateena.

Analysis - OZ Minerals Limited (ASX: OZL) recently reported a record second quarter of 2015 performance, driven by the copper production growth, which delivered highest production during the quarter in last five years. The group’s copper production surged over 50% to 32,991 tonnes in June 2015 quarter as compared to the same period last year. OZ Minerals is in line to reach its copper production target range of 110,000 to 120,000 tonne for the fiscal year 2015. On the other hand the gold production plunged to 24,790 oz in the second quarter against 32,874 oz in the first quarter of 2015.

Meanwhile, the firm’s C1 Unit cost increased to US 75 c/lb, from US 63 c/lb in the previous quarter, and is in line to meet target range of US80-US95c/lb for the fiscal year. The development of the Carrapateena Project is also ongoing, and OZL intends to spend around $30 million. The group is seeking for a partner to maximize the value from the Carrapateena project.

Prominent Hill Highlights

The Copper metal production reached 64,151 tonnes for the first six months of the year, but the Gold production fell to 57,664 ounces, as the management is diverting its focus on copper feed from gold on the back of falling gold prices. Malu Open Pit delivered a solid performance during the quarter driven by the Excavator and truck productivity which offset the interruptions due to rains. The Ore mined slightly rose to 2.6mt in the second quarter, from 2.5 mt of earlier quarter, comprising  2.0 mt of copper-gold ore and 0.5 mt of gold only ore. Meanwhile, the waste material movement was maintained at 9.9 mt in line with the previous quarter, while the year to date waste material movement fell by almost 50% to 19.8 mt as compared to the same period of last year, on the back of deliberate reduction in the Malu Open Pit strip ratio. OZ Minerals estimates to incur over $5 million expenditure in 2015 for the ongoing de-risking initiatives at Malu Open Pit.



Mill throughput over the years (Source: Company Reports)

As per the Underground operations, the Ankata mine performance slightly decreased to 254 Kt, from 344 kt mined on the first quarter of 2015, on the back of concentration on development metres. OZL estimates Ankata mine to produce 1.2 mt for this entire year. Meanwhile, the Underground mines contributed a total of 0.87 mt of ore at around 2% copper for six months ended on June 2015.

Malu Underground mining production improved from 117 kt in first quarter to 154 kt in the June quarter of 2015, with an average copper grade of 1.65% and 0.51 g/t of gold. The group has commissioned Malu Underground mine since July, three months ahead of its planned schedule. The Cemented Hydraulic Fill (CHF) paste plant development also started for Malu Underground.  Malu Underground project already incurred a cost of $137 million as of June 2015, and is on track with the group’s target of total cash expenditure of $200 million. This amount would be partly offset by over $47 million of revenue prior to commissioning, as around 0.45 mt of ore was mined from Malu Underground having 11,000 tonnes of copper, after it stopped operating in 2014. The group was able to decrease costs (which would be reflected in the second half of the year) associated with Malu Underground development as it was started three months early.

With regards to the processing highlights, a total of 2.6 mt of ore was milled during the quarter, and OZL continues to concentrate on plant throughput and consistency. The group maintained copper recoveries at 89% while the copper concentrate produced was 52%. However, the gold recoveries decreased to 72% from 75% of the previous quarter, due to intentional reduction of gold recoveries and focus on copper availability. This trend is expected to continue for the rest of the year as well. The total Prominent Hill concentrates shipments reached 60,770 dry metric tonnes, during the June quarter, which comprises 30,275 tonnes of copper, 29,650 ounces of gold and 164,468 ounces of silver.

Meanwhile, the C1 cash costs of production for the quarter rose to US75.3 c/lb of payable copper, from US63.2 c/lb in the prior quarter impacted by the decrease in gold production and lesser inventory credits, impacted by the increasing milling rates. For the six months ended on June, the C1 costs stood at US69.4 c/lb, but costs associated with Malu Underground are estimated to increase C1 costs for the second half of the year. The Open pit mining unit costs slightly rose to 5.80 per tonne for the June quarter, from 5.77 in the March quarter, indicating a stable open pit operation. However, the Ankata Underground costs surged to $41/t affected by lower production. 


C1 Factor Analysis(Source: Company Reports)

 
Global exploration highlights

The drilling of 13 holes for 3,613 meters was finished during the June quarter at its Jamaica project. Porphyry-style alteration, stockwork and chalcopyrite mineralization were intersected at the Hendley and Geo Hill Prospects, while OZL intends to drill at Hendley, Charing Cross, Kola and Dry Hill Prospects during the next quarter. 


Drilling highlights (Source: Company Reports and compiled by Kalkine)

However, at the Canada – Col-Later project, no major copper prospects were intersected but the gold mineralization witnessed intersections. Hence, OZL reported its joint venture partner on their withdrawal on the project, to remain on track with its copper focus strategy.
 
 
Other Corporate Highlights

The group’s total recordable injury frequency rate per million hours worked reduced to 6.36 during the quarter, as compared to the March quarter of 6.86. Moreover, the lost time injury frequency rate also decreased to 1.27 against the earlier quarter of 1.72. The group intends to continue to improve its safety performance going forward.


Safety Performance (Source: Company Reports)

OZL had a total cash balance of $410 million, and generated net cash of $190 million during the first half of 2015. OZL received $125 million from sale of Sandfire, while cash from operations was $65 million. OZ Minerals expects to generate positive cash flow for the rest of the year driven by the reducing capital expenditure as well as high grade options from Underground.
 

 
Outlook

The group’s Malu Open Pit is estimated to have mine life till 2018, enabling the company to deliver revenues for additional four years. Moreover, the value from the mine stockpiles is expected to be realized till 2022. By the end of 2018, OZ Minerals expects its copper ore stockpiles to be in the range of 30,000 to 40,000 tonnes of copper contained metal, while the gold is estimated to be around 45,000 to 55,000 ounces of gold metal. Meanwhile, the Gold ore stockpiles is estimated to reach over 450,000 to 500,000 ounces of contained gold metal. 


Accelerated Mining value after 2018 (Source: Company Reports)

The Integration of Ankata and Malu Underground is also forecasted to generate additional operational synergies for OZ minerals. OZL is also striving to achieve cost reductions, wherein C1 costs are forecasted to be in the lower side of US80 to 95c/lb in 2015 financial year.


Synergies across higher tonnage (Source: Company Reports)

OZ Minerals share prices has plunged over 70.5% in the last five years and declined around 20.4% over the last fifty two weeks. The stock plunged around 25% in the last three months alone, in spite of delivering a positive year to date returns of 4.3%. The decrease in the stock was partly attributed to the falling gold prices and pressure from China. Therefore the management of OZ Minerals started focusing on copper production and delivered an outstanding copper production in the second quarter of 2015. With the group building solid copper prospects coupled with the decent outlook for the copper prices, we believe that the sharp selloff in the stock should be seen as a buying opportunity to the investors.

Based on the foregoing, we give a “BUY” recommendation to the stock at the current levels of  $3.69.

---

Disclaimer
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people.Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376).The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation.Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product.The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd currently hold positions in:  BHP, BKY, KCN, PDN, and RIO. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.
Copyright
Copyright © 2014 Kalkine Pty Ltd ABN 34 154 808 312. No part of this website, or its content, may be reproduced in any form without the prior consent of Kalkine Pty Ltd.
Kalkine is a trading name of Kalkine Pty Ltd ABN 34 154 808 312, which holds Australian Financial Services Licence No. 425376.