What a rotten Christmas present for those long suffering shareholders in OZ Minerals (OZL), which is now rivaling Newcrest Mining (NCM) as the bad news stock for mining investors for 2013.
The miners shares fell 20% yesterday after it released a gloomy update to the market. It is the second gloomy update from the Company in three months.
After closing at $3.09 on Tuesday, the shares ended down 44c at $2.65. In the wake of the October downgrade, the shares fell 9% to $3.99, so the loss in the past three months has been more than 23%.
2013 was always supposed to be a a tough period for OZL, as it mined lower grade ores and shifted millions of tonnes of rock to reach higher grade of copper and gold deposits further below the existing pit at the Prominent Hill mine in outback South Australia.
But brokers said the news in yesterday’s update, especially the geological composition of the Prominent Hill mine was surprisingly negative, with lower than expected kevels of contained copper and gold.
Hence the rush by investors out of the stock (just as they quit the likes of Forge Group, Ausenco, QBE and WorleyParsons when they have delivered bad news or surprises in the past month).
OZL 2Y – Oz’s miserable 2013 sees yet another sell off, after yet another downgrade
The latest update suggests the copper and gold resource at the Prominent Hill area is about 26% smaller than believed last year, but little of that due to the level of ore extraction in 2013.
The improvement in copper and gold production that was expected to come in 2014 has now slid back, and is now forecast to happen in the later months of 2014.
Production in 2014 will be little better than in 2013, and has been forecast to be no more than 80,000 tonnes of copper and 140,000 ounces of gold.
That is also not very much more than the surprisingly lower estimate for 2013 output contained in the September quarter production report, released in October and which triggered a previous sell-off.
Oz said in October that despite mining a record amount of material at Prominent Hill, copper grades were lower than hoped during the period.
As a result, copper production will slide by as much as 14% to somewhere between 70,000 tonnes and 78,000 tonnes in 2013, compared with the previous forecast for annual production of between 82,000 tonnes and 88,000 tonnes.
Existing guidance for gold production remains in place, but the company said the poor quarter has forced up full year cost estimates.
Oz said yesterday that, "Production for 2013 is on track to meet guidance of 70,000t to 75,000t of copper and 120,000oz to 130,000oz of gold.
"Production for 2014 is expected to be 75,000t to 80,000t copper and 130,000oz to 140,000 oz gold. The copper production for 2014 is expected to be about 15,000t per quarter in the first half with the remainder in the second half. This includes approximately 4,000 tonnes of copper produced from Malu Underground which is expected to commence commissioning in late 2014.
"Copper production from the existing operations, Malu Open Pit and Ankata Underground, for 2015 to 2018 is expected to be at least 95,000tpa; based solely on Reserves (ie excluding any treatment of Inferred Resources). Gold production for the same period, also based only on Reserves, is expected to be in excess of 95,000ozpa.
"Based upon the Life of Mine plan, mining in the Malu Open Pit is expected to continue until 2018, with stockpiles to be processed after this. Mining from Ankata Underground is expected to continue until 2022."
"Reinterpretation of the Malu resource geological framework resulted in an increase in Malu Open Pit Copper-Gold Mineral resource tonnage at a lower grade.
"This reinterpretation has partially offset the Malu Open Pit Copper-Gold resource depletion. The combined measured and indicated Ankata Copper-Gold Mineral Resource increased in both tonnes and contained copper metal as a result of diamond drilling.
"Growth in this portion of the Ankata resource has more than offset Ankata mining depletion since the 2012 resource update.
"The overall, June 2013 Copper-Gold Mineral Resource has decreased in ore tonnes and copper metal since the previous estimate in June 2012.
"This is due to an increase in the resource reporting cut-off grade for the underground resources, updated geological interpretation for Malu resources and, to a lesser extent mining depletion. The Gold-Only Mineral Resource has also decreased due to the same factors," Oz told the market.
Oz suggested in yesterday’s ASX statement that it now believes Prominent Hill, which was expected to end its working life within five to six years, could now continue producing until 2022.
That is a silver lining, but given the history of surprise downgrades this year, it’s something not too many investors will bank on.
