Company Overview: OZL Minerals Limited (ASX: OZL) is engaged in the mining and production of gold, copper across its four key projects namely Carrapateena, West Musgrave, Prominent Hill, and Carajás.  At the West Musgrave project, OZL is advancing to explore the construction of a potential downstream processing plant (MHP) and near mine targets for nickel exploration.  

OZL Details

Progressed Growth Investments in Q1FY22 (ended 31 March 2022):

• OZL had ~210 million cash on hand as of 31 March 2022 with ~$480 million undrawn debt facility, thereby providing adequate liquidity to fund underway brownfield expansion projects (the Prominent Hill and Carrapateena).
• As declared under the decarbonisation roadmap, OZL is electrifying its material handling systems at the Prominent Hill and Carrapateena projects and partnering with suppliers to remove diesel from its operations and deploy battery-electric trucks for heavy haulage.
• OZL incurred ~$12.3 million expenditure on exploration and growth projects in Q1FY22.

Quarterly Operational Results, Source: Analysis by Kalkine Group

The company has planned a series of phases and stages for expansion and exploration across projects. The following table shows the delivery dates corresponding to the project milestone. 

OZL Projects & Milestone Source: Analysis by Kalkine Group

Historical Financial Highlights:

The Trend of EBITDA Growth since FY17; (Analysis by Kalkine Group)

The below picture depicts improving profitability trend aided by upward trending gold and copper prices and increasing production.

Net Margin and ROE Trend (Analysis by Kalkine Group)

Key Metrics: OZL witnessed a significant increase in ROE in FY21 versus FY20. The net margins also jumped from 15.80% in FY20 to 25.30% in FY21.

Top 10 Shareholders:

The top 10 shareholders together form ~48.76% of the total shareholding. Wroxby Pty Ltd and AustralianSuper hold a maximum stake in the company at ~19.63% and ~14.0%, respectively.

Source: Analysis by Kalkine Group

Risk Categories:

• Rise in Operational Costs: OZL faces the risk of increased logistics costs due to higher sea freight and adverse weather conditions in South Australia. Higher diesel costs and other direct costs may also lead to increased cash costs.
• COVID-19 Led Disruptions: The company faces labour supply challenges and wage cost inflation risk due to the persistence of COVID-19.

Outlook: OZL focuses on developing current growth projects, delivering the set operational targets, and supplementing new growth options to the portfolio in 2022. It expects stronger operational results during the rest of FY22.

 

FY22 Production Outlook by Projects (Analysis by Kalkine Group) 

Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative)

 Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of OZL gave a negative return of ~11.20% in the past month and a negative return of ~16.76% in the past three months. The stock is trading lower than the 52-weeks’ average price level band of $20.050 - $29.750. The stock has been valued using the EV/Sales-multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount than its peers’ mean EV/Sales multiple, considering the COVID-19 disruptions, copper and gold price changes, and exploration risk at the early-stage projects. For this purpose of valuation, a few peers like IGO Ltd (ASX: IGO), Evolution Mining Ltd (ASX: EVN), and Northern Star Resources Ltd. (ASX: NST) have been considered. Considering the robust demand outlook for copper and nickel, milestone acceleration across projects, expected potential for exploration growth, an indicative upside in valuation, associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $22.200, as of 11 May 2022, down ~0.892%.

OZL Daily Technical Chart, Data Source: REFINITIV  

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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