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.
Delivered strong September quarter driven by Prominent Hill operations performance: OZ Minerals Limited (ASX: OZL) prominent hill operations witnessed a solid copper production of 33,518 tonnes during the September quarter of 2015 as compared to the 32,991 tonnes in the second quarter of 2015, and generated 97,669 tonnes during nine months to ended at September, boosted by the group’s efforts of focusing on Copper feed. Accordingly, the group has decreased its gold production to 23,817 ounces during the September quarter as compared to 24,790 ounces during the second quarter, and on track to meet its annual guidance. Ore mined during the September quarter reached 3.0Mt with 2.6Mt of copper-gold ore and 0.4Mt of only gold ore, wherein 2.7Mt of ore was milled from the continuing plant during the quarter. Plant recoveries reached 88% for copper and 71% for gold and Copper content concentrate reached 49%. On the other hand, OZ Minerals has been focusing to decrease its costs despite higher productions and was able to reduce its C1 cash costs of production to US74.3 c/lb of payable copper in the third quarter as compared to US75.3 c/lb in the second quarter driven by the increase in milled copper ore coupled with the falling Australian dollar and decrease in net costs. Accordingly, the C1 costs reached US71.1 c/lb during the nine months of September and on track to achieve the total year guidance estimate of US70- 80c/lb. The group’s cost control efforts led to a decrease in Open Pit mining unit costs of $5.62/t mined during the quarter. However, the underground operating costs rose to $46/t on the back of rising operating developments costs but processing and maintenance costs decreased with better wear performance of mill liners. The group’s de-risking initiatives have been on track with the estimated expenditure of $5.0 million in 2015. Meanwhile, Malu underground operation started in July and generated high grade copper ore of 0.45Mt at 2.0% copper during the quarter.
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Improving copper production over the past few years (Source: Company Reports)
Enhanced Mineral Resource estimate at Prominent Hill:OZ Minerals Prominent Hill Mineral Resources has four areas which include Malu Open Pit and the Malu, Kalaya and Ankata underground areas. The group’s Prominent Hill Mineral Resource operations recently reported their estimations of over 152 million tonnes of copper-gold mineralization grading at 1.2% of copper, 0.6 grams per tonne gold, 2.8 grams per tonne silver as well as 27 million tonnes of gold-only mineralization grading at 1.3 grams per tonne gold and 1.5 grams per tonne silver as of June ending. This Mineral Resources update is better as compared to the earlier estimates. The gold-only Mineral Resource estimate is 4% better in ore tonnes while 3% lesser in gold ounces. The reducing copper-gold and gold-only Minerals Resources estimates are on the back of mining depletion from both the Malu Open Pit and the Prominent Hill underground. On the other hand, the application of bulk density resulted to a net increase in the estimated bulk density and consequently higher Malu and Kalaya underground Mineral Resources estimates.
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Estimates at Prominent Hill indicating its strong asset quality (Source: Company Reports)
New mineral resource identified at Carrapateena Project: OZ Minerals reported a new mineral resource update for its Carrapateena project which comprises a high grade core with the mineral resource being estimated at 61Mt @2.9% CuEq2. As a result, the group started a scoping study aiming to define a potential mining and processing project of up to 3 Mtpa which would need a capital of less than $1 billion using selective mining methods. Meanwhile, OZ estimates its scoping study to be in the range of $0.3 million and would be covered in the $30 million budgeted spend for Carrapateena in 2015. Simultaneously, the group is even evaluating two other Carrapateena options (block cave and rail link) while all the options would be supported by the Hydromet process. The first results from the Hydromet demonstration plant showed that the process is scalable and is generating a copper-in-concentrate levels of greater than 55% during the quarter. If the group achieves positive results then it could be among the best and cleanest copper concentrate in the world having no impurities. The group forecasts to update the market in the first quarter of 2016 on its Carrapateena development options.
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Carrapateena Project’s indicated and inferred mineral resources (Source: Company Reports)
Ongoing drilling at Jamaica: With regards to the Bellas Gate project at Jamaica, drilling of seven holes for 1,435 meters was finished during the September quarter which includes 1 hole for 235 meters at Hendley Prospect, two holes for 220 meters at Charing Cross Prospect, two holes for 413 meters at Dry Hill Prospect, one hole 262 meters at Congo Prospect and one for 307 meters at Kola Prospect. Meanwhile, drill holes at Charing Cross and Dry Hill intersected minor chalcopyrite and bornite in veins and structures. Mab Hill first hole results delivered low grade copper and gold related with porphyry veining. Provost Prospect Field mapping recognized many areas of intense porphyry-style quartz veining and variation related to iron oxides, copper oxides and limonite at surface. Extra field reconnaissance would be finished along the Hendley – Provost - Geo Hill trend. The group intends to conduct Kola Prospect drilling during the fourth quarter of 2015. With regards to Rodinia project at Jamaica, the group entered into a definitive Joint Venture agreement with Carube Resources Corp., wherein OZ Minerals might be appointed to participate in exploration on up to three additional projects in Jamaica, which would earn up to 80% in each.
Partnered with PepinNini for Nickel Sulphide Polymetallic Exploration at Mt Woods SA: OZ Minerals entered into a farm-in joint venture with PepinNini Minerals (PNN) for the Mt Woods Inlier, which is situated around the locality of the OZ Minerals’ Prominent Hill Copper-Gold Mine, Gawler Craton and over 600km northwest of Adelaide. The project area has exploration licenses 5210 and 5439 in South Australia. Meanwhile, PepinNini has the right to earn up to an 80% interest over five Stages of exploration for up to 10 years which include drilling. PNN might spent over $4.4-million to get first 40% interest in the project area and would drill a minimum of 8,000 m. On the other hand, the group might not fund further expenses during stages three to five of the explorations and PNN could earn extra 40% interest by conducting a further 30,000 m of drilling and spend $12-million on exploration during stages three and four. PNN might need to spend over $15-million on the prefeasibility study during stage five. PepinNini would search non-ferrous mineralized mafic to ultramafic magmatic geological environments comprising Nickel (Ni) Sulphides, Platinum Group Metals (PGE) as well as commercial accessory minerals like Cobalt, Gold and Silver (excluding Copper).
Stock Performance: With the strong prominent hill copper production during the third quarter, OZ Minerals improved its copper production guidance for the full year of 2015 to the range of 126kt to 131kt. OZL also expects an ongoing cost efficiency and accordingly forecasted its C1 unit cost for the fiscal year of 2015 in the range of US70-80c/lb and Open pit unit mining cost (inc. geology) in the range of $5.60 - $5.80/t. The group’s copper concentrate continues to generate ongoing demand from long term as well as new customers. OZ Minerals also conducted several meeting with clients to boost its relations and further generate business. Meanwhile, OZ Minerals shares surged over 23.9% in the last three months partly driven by the speculations around the stock on a potential takeover and Kohlberg Kravis Roberts (KKR), a private equity firm putting a $3.60 offer price for a 10% stake at OZ Minerals. But, the stock has been consolidating over the last four weeks and slightly fell over 3.9% (as of November 24, 2015), giving an entry opportunity for investors. We believe the stock is trading at a cheaper P/E of 11.97x and a decent dividend yield of 3.8%. Based on the foregoing, we give a “BUY” recommendation to the stock at the current price of $4.15
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OZL Daily Chart (Source: Thomson Reuters)
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