OZ Minerals Limited

OZL Details 
Ongoing strong production: OZ Minerals Limited (ASX: OZL) reported a better copper production of 29,758 tonnes in the fourth quarter of 2016 as compared to 28,756 tonnes in the third quarter production. Accordingly, OZL generated a solid cash of $656 million as of December 31, 2016 while achieved cost savings of more than $40 million. The group has no debt and invested $46 million in Carrapateena project with $73 million cash investment into ore inventory (plus $136 non-cash investment during year). The group expects a better copper production for 2018 and 2019 while the Prominent Hill (PH) mine life got extended to 2028 driven by growth in underground ore reserve of more than 40%. Moreover, the group further hedged gold by 10 koz during the fourth quarter of 2016 leading to a total hedge (starting from 2018) to 200 koz at an average price of A$1,731/oz.
 
Sales performance: The group’s unaudited net revenues reached c.$820 million in 2016 wherein the gold was representing c.25%, The group locked in copper price at time of sale started from July 01, 2016. OZL reported a solid demand for PH copper concentrate from long term and new customers and has long term contracts which are scheduled for 2017 and 2018 sales.
 
Rising costs: Rising cash cost is a concern for the group as C1 costs reached US 77.9c/lb during the fourth quarter of 2016 as compared to US 70.7c/lb in the third quarter of 2016. For Prominent hill operations, C1 costs rose to US 78c/lb for the fourth quarter of 2016 as compared to US 71c/lb in the third quarter of 2016. Year-to-date (YTD) C1 cost reached US 74.1c/lb in line with 2016 guidance while underground operating unit costs reached $50/t for the fourth quarter and $53/t in year to date. The group expects C1 costs (OP & UG) to be in the range of US 85c - US 95c/lb for 2017 while All in sustaining cost is expected to be in the range of US 120c – US 130c/lb.

Prominent hill operations C1 cost analysis (Source: Company Reports)
 
Stock Performance:OZL stock rallied over 148.2% in the last one year (as of February 02, 2017) placing the stock at relatively higher levels. Moreover, the rising costs and volatile commodity prices could impact the stock performance in the coming months. For instance, the stock price fell 2.9% on February 03, 2017 while the group cancelled the shares bought back under the on-market share buyback program of 2016. Trading at a higher level, we give a “Sell” recommendation on the stock at the current price of – $ 9.15
 

OZL Daily Chart (Source: Thomson Reuters)

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