OZ Minerals
About the author:
- Author name:
- By Tom Sartor
- Job title:
- Senior Analyst
- Date posted:
- 28 April 2017, 11:56 AM
- Sectors Covered:
- Junior (Emerging) Resources, Bulk Materials
Absorbing 1Q weather impacts
1Q production (25.1kt Cu @ US$1.00 C1) was approximately 5-10% worse than our forecasts due to severe January weather. While CY17 guidance has been maintained, effectively this again limits OZ Mineral's (OZL) ability to shoot for the top end of this range (105-115kt Cu) similar to post the Oct-16 power outage.
We trim our CY17 production forecasts to reflect this, and apply updated CY18-19 depreciation guidance to generate slight adjustments to our forecasts.
Carra value proposition intact despite board delay
Deferral of board approval for Carrapateena by up to five months and associated adjustments to the development model (including the CTP) have exacerbated recent price weakness. Delayed resolution of the Carrapateena mine plan/schedule and the CTP feasibility are reminders about the technical complexity of the project and the importance for investors not to discount them. However some important points are worth noting:
- deferral of board endorsement does not actually delay the production start; and
- OZL's pre-development activity/spending all but confirm (in our view) the board's view that the project is viable and will proceed as fast as practicable.
De-rating creates value opportunity
Several other events have also weighted on the OZL share price, namely:
- an easing copper price (likely linked to moderation in the 'reflation trade');
- removal of the on market buy-back;
- intense press around SA power security; and
- seismic disruption at the Cadia panel cave (a technical comparable for Carra).
These issues affect sentiment, and remind us to discount risk properly, but do not materially alter our OZL valuation. Effectively they have served to remove the excessive premium that had previously been built into OZL's share price to now create better value for buyers.
Investment view
We are attracted to OZL's copper endowment, strong balance sheet and excellent cash flow leverage to compelling medium-term copper dynamics. The OZL share price has corrected by 30% from its February high. Profit taking my moment/relation traders is creating an opportunity for fundamentalists capable of digesting recent issues. We think that price weakness has gone far enough, to now offer buyers solid upside in OZL versus its inherent risks. We also think that OZL can readily re-attain wide investor interest as recent events are digested and as the outlook for global growth improves.
We upgrade our recommendation to Add.
More information
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