Wise-Owl Checklist
- Michelmore is the former CEO of WMC Resources which was taken over by BHP Billiton.
- Company has a busy schedule of production and exploration for the next decade.
- Production at Prominent Hill is expected to begin this year and add 110,000-120,000t of Cu per annum next year.
- Merrill Lynch holds 6.89% and AXA 5.29%.
- Stock is heavily oversold and may have found a bottom.
|
|
Summary
Background
Investment Summary
OZ Minerals is the result of a 50/50 merger between Oxiana Resources and Zinifex. The merger has created the fifth largest resource company in Australia after BHP, RIO, Fortescue, and Newcrest and the 2nd largest zinc producer in the world. The stock has taken a large hit due to a weak market, depressed zinc prices, and possibly pre-merger shareholders selling post-merger.
Behind the scenes the company is working on increasing production at their existing mines while bringing others into production. Their combined net cash backing, after stripping out interest bearing debt, is $0.62. Their combined mineral reserves are 6.2mt of zinc, 1.878mt of copper, and 696,000t of lead excluding gold and silver. Based on last year’s earnings their combined EPS is $0.29, hence currently the stock is trading on a theoretical historical P/E of 6.2.
The main risk facing OZ Minerals are continuing falls in zinc prices and any weakness in copper prices, which is currently near record highs. As readers of the wise word would be aware, sentiment towards resources and metals prices has softened in recent weeks, however with a warchest of cash estimated at over $1bn, OZ Minerals is well positioned to capitalise on any weakness in the sector. The company has not been shy about its hunt for acquisitions, and should the resources sector be de rated, we would not be surprised to see OZ swoop. Rising costs are also a concern although diesel prices have fallen back recently. Another concern is a rising Australian dollar although this too has fallen back recently as expectations for a rate cut are increasing.
Whereas Oxiana was a gold/copper producer, the combined entity has become a predominantly copper/zinc producer. From 2010 copper will be the group's main earnings driver as the Sepon copper mine in Laos and Prominent Hill in South Australia will add approximately 130,000t copper to annual production. Prominent Hill is targeted to produce by year end and 72% of overall construction has been completed. In 2009 Prominent Hill is expected to add 110,000-120,000t copper and 75,000-85,000oz of gold to annual production. The mine has a reserve of 68.8mt at 1.3% copper, 0.6g/t Au, and 3.2g/t Ag. Sepon is currently producing 60,000t of copper cathodes at a cash cost, including royalties, of $1.13/lb. OZ Minerals is expanding production to 80,000t and ultimately 100,000t which will cost US$178m and will also reduce operating costs by 10%. Plant throughput will increase from 1.35mt/a to 2mt/a. The company is also producing zinc from Century (North Queensland), Rosebury (Tasmania), and Golden Grove (WA), or about 720,000t in total per annum. Drilling at Rosebury and Golden Grove is targeting resource upgrades. |
