Oz Minerals Ltd (ASX: OZL)
Business Strategy & Outlook
Oz Minerals Ltd (ASX: OZL) first-half 2021 net profit after tax of AUD 269 million, or AUD 0.81 per share,
was more than triple the AUD 80 million profit from first-half 2020. Adjusted net profit was AUD 256 million versus AUD 56 million a year ago, modestly below our AUD 267 million forecast.
The first-half profit benefited from an AUD 18 million pretax impairment reversal relating to the value of the company’s ore stockpiles at Prominent Hill. Adjusted EBITDA nearly doubled to AUD 561 million. Operating cash flow generation of AUD 460 million in the half was strong and allowed the company to fund all of its capital initiatives, as well as repay all debt.
Shares remain overvalued, a function of the elevated copper price, in turn a function of both supply challenges and transitory stimulus. Of late, the copper price has started to retreat and has fallen to around USD 4 per pound from record levels of nearly USD 5 per pound in May 2021. Oz Minerals remains very busy on the development front.
Company’s Future Outlook
It lowers fair value estimate for Oz Minerals by 5% to AUD 15.70 per share. The reduction primarily reflects an approximate one-third increase in the expected capital expenditure to develop the Prominent Hill shaft to around AUD 600 million. The capital cost inflation reflects inflation in commodities and service costs, as well as some scope changes. In the rest of the year, the company expects to update development studies for the West Musgrave nickel/copper project–including an updated estimate of reserves and resources–and the Carajas East, Carajas West, and Centro Gold projects in Brazil. The pipeline remains rich, continues to build and advance, and Oz Minerals is in a strong financial position to execute. At the end of June 2021, the company had no debt and AUD 134 million cash.
Company’s Future Outlook
We also think the company should be able to fund annual dividends averaging over AUD 0.50 per share per year. Dividends are not the main game for Oz Minerals and the company is clearly focused on growth, but we think it’s positive that excess cash is being returned to shareholders. To this end, the company declared an AUD 0.08 per share interim and AUD 0.08 per share special dividend in the half, double last year’s interim dividend.
Oz Minerals Ltd (ASX: OZL) is a mid tier copper/gold producer. Prominent Hill produced about 100,000 tons of copper in 2020 with cash costs well below the industry average. The mine is a very small contributor to total global refined output of about 24 million tons in 2020. Finite reserves are a challenge, but management has extended life at Prominent Hill, albeit at a lower production rate. Life extension comes with development of the nearby Carrapateena mine, which started in 2020. Carrapateena should initially ramp up to produce at about 70,000 tons a year before expanding to just over 110,000 a year from around 2028. The acquisition of Brazil-based Avanco Resources adds volumes but the scale is smaller than the Australian assets, costs are higher and growth is likely to be incremental.
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
Any advice provided by Laverne is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.