No Wizardry in Sharp Downgrade for OzMin

OZ Minerals has blamed the wet weather in parts of South Australia and Covid-driven staff shortages, plus mechanical problems at its Carapateena copper mine for a sharp downgrade of its forecast copper production this year.

The miner told the ASX on Monday that 2022 copper production has been lowered to reflect the softer start to the year and further material handling system and equipment availability issues at Carrapateena.

And its core Prominent Hill mine is improving but production looks like being a bit lower than expected.

“Group All In Sustaining Cost guidance has been increased by 17% due to the lower production combined with current cost inflation of circa 8%,” OZ said in the statement.

“COVID absenteeism and flooding that affected both Australian assets during the first quarter resulted in lower first quarter production rates. Remediation programs were established at both Prominent Hill and Carrapateena.

That saw the shares slide 3.8% to $18.46 yesterday. That’s the lowest since early February last year.

The fall in OZ Minerals’ share price wasn’t as dramatic as the 22% slump in the price of fellow gold and copper miner, Evolution, but it was enough to make analysts wonder about the performance of other gold and copper miners.

That plus the big fall in copper prices late last week also saw a 5% plus slide in the price of Newcrest shares yesterday. They ended at $21.74, the lowest they have been since the end of January.

OZ Minerals said the Prominent Hill plan is seeing quarter on quarter production improvement and annual copper production is expected to be at the lower end of the tightened full year guidance range. Carajás (in Brazil) is on track to produce at the higher end of its unchanged guided range.

With copper prices down more than 20% in the last three months, it is a bad time for a miner to be reporting falling production of one of its key commodities.

However, OZ said Carrapateena’s remediation plan has been adversely impacted by further conveyor belt issues on the material handling system (resulting in a reduction of around 4,300 tonnes of copper metal produced), as well as continuing resourcing and supply chain issues impacting equipment availability.

Carapateena accounts for around half OZ’s annual copper production. The lost production would be around 7% of the old guidance range of 62,000 to 72,000 tonnes of metal, so the impact will be substantial if the lost output is not recovered over the rest of 2022.

The slide in copper metal prices adds to the financial impact on OZ – prices are down more than 20% in the past couple of months

“Ongoing cave management (at Carapateena) remains the priority with encouraging cave movement continuing during the second quarter, OZ told the ASX.

A more comprehensive operational re-set plan is being established to lift production rates in the second half of the year to drive Carrapateena towards achieving a revised production guidance range of 55,000 – 61,000 tonnes of copper (lowered by around 13% from 62,000-72,000 previously).

Carrapateena’s longer term guidance to 2025 is unchanged, OZ said on Monday.

“Group unit costs have been impacted by lower production at the Australian assets and industry cost inflation circa 8% across all assets which has persisted at these higher levels into the second quarter.

“Key inflationary impacts were on labour, transport, fuel, explosives and ground support. The Australian assets are under a fixed price electricity contract and as a result are not currently directly affected by east coast electricity price increases,” CEO Andrew Cole said in Monday’s ASX update.

About Glenn Dyer

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.

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