OZ Minerals says it expects to Covid impact to diminish this year

OZ Minerals boss Andrew Cole says Russia’s invasion of Ukraine has exacerbated market volatility, making commodity markets too tough to predict.

OZ Minerals operates the gold and copper mine Prominent Hill in South Australia. Picture: OZ Minerals

OZ Minerals boss Andrew Cole says it is becoming a “fool’s game” to try to predict the direction of commodity markets in the wake of Russia’s invasion of Ukraine, as Russia’s aggression exacerbates broader geopolitical tensions amid the ongoing impact of the Covid pandemic.

OZ Minerals production drifted in the March quarter due to the impact of Covid-19 and bad weather in South Australia, with copper output from its mines down more than 5 per cent from the December period.

The company’s mines produced 30,322 tonnes of copper in the March quarter, down from 32,169 tonnes in the three months to the end of December, with all-in sustaining costs up 9.2 per cent to $US1.744 per pound of copper.

The company benefited from the rising copper price in the quarter, finishing March with $210m in the bank despite lower output and having spent $176m on its growth projects.

Mr Cole warned shareholders that the company still faced considerable challenges in the face of rising Covid-19 cases, but said the company did not believe its full-year output guidance would be threatened.

The company said absenteeism due to Covid remained high, particularly at Prominent Hill – where up to a quarter of its workforce was affected by the virus in the first quarter – and “remains a risk to operational productivity.”

But Mr Cole said he expected the virus to have a diminishing impact in coming quarters as SA follows other states and eases restrictions forcing close contacts to isolate for extended periods.

OZ Minerals said it expected to meet its full-year output and cost guidance, despite the outsized impact of Covid-19 in the first few months of the year.

“We included some Covid contingency in our full-year guidance,” Mr Cole said. “I think what we saw in January was above the average contingency we planned for – but having said that, I expect it‘s going to be below the average running through the rest of the year.”

Output at Prominent Hill was down 10 per cent compared to the December quarter, at 11,928 tonnes of copper, with AISC rising to $US2.045 a pound of copper produced.

Production from OZ Minerals Carrapateena mine softened slightly, at 16,146 tonnes compared to 16,874 tonnes in the December quarter.

But strong copper prices have helped the company even though its output slowed in the March period. OZ Minerals noted that 33,500 tonnes of copper sales from the March quarter had been provisionally priced at more than $US10,350 a tonne, slightly above the current copper cash rate on the London Metal Exchange of $US10,280 a tonne.

Russia’s invasion of Ukraine has up-ended commodity markets, disrupting trading in nickel, coal, gas and oil as buyers seek alternatives to Russian supply.

Russia is also a significant copper producer, with its mines producing about 800,000 tonnes of copper in 2021, putting the country in the top 10 global producers. Mr Cole said OZ Minerals had so far not seen any real short-term impact on copper markets from Russia’s invasion of Ukraine, and it was too early to tell whether there would be any long-term fallout from Russian aggression.

“Then there’s also other geopolitical tensions that play on top of the Covid environment – which is making transport and shipping very unreliable and very expensive,” he said.

All of those came on top of geopolitical tensions surrounding China’s increasingly assertive international posture, and uncertainty around the impact that Beijing’s zero-Covid policy would have on its industrial output and demand for key commodities.

Despite all of that, demand for copper was still outstripping sources of new supply, Mr Cole said.

“Trying to unpack all of that I think is a fool’s game,” he said.

OZ Minerals shares closed down $1.66 to $24.55 on Friday.