Flying OZ Minerals Beats Production Forecasts
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Shareholders in OZ Minerals can look forward to a stellar result next month after reporting very solid copper and especially gold production figures for the December quarter and 2017 year.
That enabled the company to sell more copper and gold into a rising market in 2017 with prices for both up more than 10% across the year.
In fact the shares hit a 10-month high of $9.36 after the copper miner revealed it would produce more of the metal in 2018 and 2019 than previously expected.
The upgrade to future copper production guidance came as OZ confirmed it had met its copper target for 2017 and had beaten its gold production forecast.
On a day when most resources stocks were trading lower, OZ was a rare riser, with shares ending 1% higher at $9.17.
Oz Minerals says fourth-quarter gold production jumped 34%, enabling it to meet its forecast - in fact full-year copper production, at 112,008 tonnes, was at the top of its forecast range
Full-year gold production of 126,713 ounces beat Oz Minerals' expected 115,000-125,000 ounces
With the solid end to 2017 by gold and copper prices, shareholders can look forward to a big result in next month’s 2017 profit announcement.
In fact copper prices were up by a third in 2017 to their highest in nearly 4 years on the back of strong demand in China, disputes at the big mines in Chile (including Escondida, controlled by BHP and Rio Tinto), problems with mining licences in Indonesia (Grassberg) and falling grades across much of the industry.
Gold prices rose from just over $US1,100 an ounce in early 2017 to more than $US1,300 at the end - a jump of 14%.
That ad the solid priduction should see OZ easily top the $107.8 million earned in 2016 on revenue of $822 million.
OZ Minerals said recently it would produce between 90,000 and 100,000 tonnes of copper from its Prominent Hill mine in South Australia (thanks in part to an 18% increase in reserves and better mining methods) in each of 2018 and 2019, but yesterday that estimate was raised to between 100,000 and 110,000 tonnes for 2018.
Copper guidance for 2019 was also raised to between 95,000 and 105,000 tonnes. The trade off will be lower gold production in 2019.
OZ still has no debt and a cash balance of $729 million. But some of that will be used this year.
CEO Andrew Cole said yesterday OZ expects cash generation at Prominent Hill to be strong in 2018 which will help finance is expansion and operation, and fund other work.
Oz has yet to decide whether to take on debt to fund construction of the near $1 billion Carrapateena copper project and that decision will come later in 2018.
"We have obviously got plenty of cash now to build Carrapateena, we have not yet made a decision on whether we fund Carrapateena entirely from cash or use other mechanisms," he said.
This year looms as the biggest for spending on Carrapateena, after the company’s board approved a $916 million package in August last year.
The company is expected to spend about $500 million of that in 2018.
It will also lift its exploration efforts around Carrapateena.
Mr Cole said yesterday that at Carrapateena "the focus remains on progressing construction on time and within budget. In a separate piece of work, we will be looking at exploiting the wider Carrapateena province potential. 2018 will see renewed focus on the Khamsin and Fremantle Doctor prospects and additional exploration at Punt Hill, the newest of our joint ventures, 50km south of Carrapateena. We will also begin investigating future options for the remainder of the Carrapateena mineralised zone.”
“The West Musgrave Pre-Feasibility Study is underway. In parallel, a $4 million exploration program will focus on district potential including the One Tree Hill prospect and Succoth copper deposit.
”The outlook for copper is positive. The fundamental drivers of demand remain robust and are materially enhanced with increasing electrification of cars, buses and trains and further development of renewable energy sources, all of which utilise high volumes of copper,’ he added.
Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.
At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.