Oz Minerals wants to spend

Advertisement

Shares in Oz Minerals have declined by about a third since mid February. RBS a couple of weeks ago was noting the interest in shorting the stock, citing “an overhang on the stock, including a relatively short mine life, acquisition risk as OZL aims to undertake a significant transaction to grow the business and the recent conclusion of the on-market share buyback.” RBS reckoned that the Carrapateena project faces a number of challenges, especially cost pressures.

The company produced 25,521 tonnes of copper and 34,475 ounces of gold for the second quarter 2012, compared with 27,182 tonnes of copper and 38,887 ounces of gold in the first quarter of 2012. Cash costs increased from USD 0.969 to US$1.185 per pound of copper, after the gold by-product credit. But this included a number of one-off costs. Managing Director Terry Burgess says exploration results at Carrapateena are generally better than expected with the orebody slightly thicker and at good grades.

Deutsche Bank has a hold on the stock and a price target of $8.10. The big question is where Oz Min will find new mines. It has $666 million in cash and $200m undrawn debt. The market is watching for M&A action:

Advertisement

We believe OZL continues to look for a mine to bring online ~2015 to add +50ktpa of copper on top of PH ~100ktpa with opportunities possibly emerging given the tougher funding environment for juniors. The company continues to explore (6 rigs on PH ground) with a c.$100m budget near mine (exploration decline due 3Q for drilling below open pit) and regionally.

On Deutsche’s figures Oz Min’s earnings multiple rises next financial year, so that acquisition, if it comes, will need to be good.

0900 b 8 c 085739916

Advertisement