OZ Minerals’ guidance has led to more disappointments

Once again, OZ Minerals’ guidance has led to more disappointments.

Having downgraded output in January to between 90,000 and 95,000 tonnes from between 90,000 and 100,000 tonnes in December, the further downgrade today puts OZL in a downward spiral.

New copper output for the Prominent Hill mine has fallen a further 8.9% to between 82,000 to 88,000; the medium estimate for this quarter production was 92,300 and that is an 11.15% miss. The company is blaming the slippage is due to limited access to the Stage 3 mining area; work is underway to reify situation. However, the time opportunity lost due to this problem will impact OZL economically, as the section is not due to be open until late August at the earliest.

OZL is also suffering from lower grades, leading to lower recoveries - all impacting bottom lines.

OZL’s production disruption will lead to cost blow-outs. The average cash cost guidance has moved up $1.65 to $1.80 a pound, from $1.50 to $1.60. With copper prices in a free fall at the moment (LME copper at $6990 a tonne - the lowest price level since October 2011), the squeeze is on. The annual general meeting next week will be a fiery affair as shareholders demand a halt to the skydiving in the share price as dividends come under fire and cash flows dry up.

The company has managed to maintain its gold production forecast of 130,000 to 150,000 ounce, however analyst believe actuals will come in on the bottom-end of the estimates, with medium calls expecting 138,000 ounces in 2013, with gold also tanking; there is no saviour here either.

Champions of OZL all talk about the upside risks associated with its Carrapteena project. They liken it to OZL’s white knight, however output at this project is over five years away and there is a mountain of capex to come before it takes over the downgrades from Prominent Hill. Plus, several high-profile mining companies have been scaling back capex to meet global demands; downside-risk is on the rise in our opinion.

We would expect OZL’s share price to suffer once more with this guidance. Investors searching for copper exposure are more likely to look to the likes SFR with its iron ore, gold and copper outputs, or PNA with is higher-grade copper outputs - leaving OZL out in the cold.

EVAN LUCAS
Market Strategist

www.igmarkets.com

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