OZ Minerals See’s Higher Costs & Lower Copper Output

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OZ Minerals See’s Higher Costs On Staff Absenteeism & Lower Copper Output

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OZ Minerals Limited (OZ Minerals or the Group) was formed in 2008 by the merger of two Australian mining businesses – Oxiana and Zinifex.  OZ Minerals is primarily a copper explorer. It operates two underground copper-gold mines 650 kilometres north-west of Adelaide, being Prominent Hill and Carrapateena.

June 2022 Quarterly Production Report

Oz Minerals has reported that the impact of COVID absenteeism, flooding, supply chain disruption and inflationary pressure, has seen a softer second quarter production volume than anticipated. Copper production at its Carrapateena copper-gold mine was also impacted by material handling equipment failure. Conveyor belt issues on the material handling system at Carrapateena resulted in 4,300 metric tonnes of lower copper metal production in the June quarter. These factors explain higher Group unit cost guidance and lower copper production volume in the June quarter. Total volume of copper produced in the June quarter was 27,423 metric tonnes, compared with 30.322 tonnes in the March quarter. However, June quarter gold production was higher than the previous March quarter, at 51,184 ounces, compared to 48,773 ounces.

Current FY2022 copper production guidance is 120,000 - 135,000 metric tonnes, down from the original production guidance range of 127,000 - 149,000 tones. FY2022 gold production guidance remains unchanged at 208,000 - 230,000 ounces. Production at the Carrapateena copper-gold mine has now resumed to full production capacity and continues to operate without issue.

All-in Sustaining Costs (AISC) for FY2022 are estimated at 160 - 180 US cents/lb, up from the guidance range of 135 - 155 US cents/lb at the commencement of the financial year. It should be noted that AISC for the June 2022 quarter was US210 cents/lb, which is considerably higher than the current 160 - 180 cents guidance range. Apart from lower production at the Australian assets, the more serious concern around higher unit production cost is the industry inflation rate of circa 8 percent across all assets.

Financial position and growth prospects remain strong

Net revenue of $909 million in the first half year to June 30 leaves Oz Minerals with net cash of $82 million, after reinvesting $210 million in growth projects. Working capital liquidity was strengthened in the June quarter after the Group’s corporate debt facility was increased from $480 million to $700 million. This facility has been extended to a 5-year term.

The Group’s growth organic projects in Brazil are moving ahead. The Pedra Branca underground copper mine ramp up of ore movement was completed ahead of schedule. The Carajas East mine is also on track to produce at the higher end of its unchanged guided range.

The West Musgrave mine site in Western Australia progressed well during the June quarter with the Mining lease granted. This project is scheduled for investment decision in the December 2022 half year. The impact of cost inflation will be an important consideration as the Group approaches a final investment decision.

A conditional Terms Sheet with Havilah Resources has been executed in relation to an option to acquire the Kalkaroo copper project in South Australia. Definitive binding agreements are being worked up and a final decision is dependent on a Havilah shareholder vote at the end of August.

Looking Ahead

Inflationary driven rising production costs represent short-term headwinds that will impact the OZ Minerals FY22 result due to be released on 29 August 2022.

Oz Minerals continues to advance its current growth projects and is adding new growth options to its portfolio. Despite a weakening copper price over recent months, the medium to long-term term outlook for minerals linked to the renewable energy industry remains strong.

Louis Mosmann

Louis Mosmann is a Private Wealth Client and Research Assistant at KOSEC- Kodari Securities. Louis covers macroeconomic events, global markets and ASX300 company announcements, allowing clients to make more informed investment decisions. Email Louis at l.mosmann@kosec.com.au.

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