OZ Minerals has delivered a jump in profits while pushing ahead with the construction of the Carrapateena mine in South Australia

OZ Minerals has delivered a 59 per cent jump in profits for the first half in a result one analyst described as “easily a better result than we forecast’’.

OZ Minerals has delivered a 59 per cent jump in profits for the first half in a result one analyst described as “easily a better result than we forecast’’.

The Adelaide-based mining company has had a busy six months, with the takeover of Avanco Resources adding assets in Brazil to its Australian projects, and the ongoing construction of the Carrapateena cooper/gold mine in South Australia’s Far North, which remains on budget and on schedule to start producing copper in the last quarter of 2019.

OZ will pay a fully franked 8c dividend, up from 6c last year, and managing director Andrew Cole said the company had revised its dividend policy to provide for sustainable returns to shareholders.

“Our revised capital management strategy takes into consideration our broader asset base and a healthy project pipeline as well as the expectations of our shareholders,’’ he said.

“It recognises the importance of shareholder returns as we allocate capital to grow. Our new dividend policy is designed to prioritise returns to shareholders by paying a sustainable ordinary dividend from pre-growth cash flow, while having regard to near term, identified capital investment opportunities that create superior value, and the need to maintain a strong balance sheet.

“The framework also sees the intent to return surplus cash to shareholders as the cycle permits and to consider access to debt funding for future growth projects, if required, with a targeted gearing ceiling of 20 per cent.’’

Revenue for the half was $530 million, up 19 per cent, driven by an 18 per cent increase in the copper price, while net profit was $128 million.

The company has a cash balance of $493 million and remains debt free.

This follows investments of $143 million into Carrapateena and $162 million for the Avanco acquisition.

Mr Cole said the company had a solid platform for growth.

“Our growth pathway is now more assured with a range of assets in various stages of development,’’ he said.

“Prominent Hill production is supported by a new operating mine in Antas, which is currently undergoing an optimisation review. Carrapateena construction is on track for first concentrate production in Q4 2019 and a progressive stream of projects will potentially advance to construction in the coming years, including West Musgrave in Western Australia and Pedra Branca and CentroGold in Brazil.

“Having undertaken an intensive review of the newly acquired Brazilian assets over the past six weeks, we have developed an optimisation plan based on project value and maturity.

“Further reviews, drilling and detailed costing is required to finalise the scopes and metrics of various studies, but the development pathway enables us to progress sequential works across the new portfolio to manage workload, expenditure and effective implementation of each stage.’’

Mr Cole said the company expected operating costs at the Prominent Hill copper and gold mine in SA to be lower in the second half.

RBC Capital Markets, in a note to clients, said: “This is easily a better result than we forecast, even after removing what we thought would be a positive impact on revenue from rising prices through the first half (obviously current copper weakness is not relevant, although could present a drag in 2H given our bullish forecasts compared against spot prices).

“Costs overall were better than we had estimated, although a closer look shows direct operating costs were slightly higher (mining, processing, transport), while the beat was driven by lower expensed exploration and corporate charges — to deliver the better underlying EBITDA and NPAT.

“The dividend also surprised to the upside, and could be designed to demonstrate conviction around both current cash position and future cash generation.

“The company is still comfortably funded, and we would not be surprised to see some debt added in due course to maintain flexibility given additional commitments to a new acquisition and ongoing development/evaluation of projects.’’

RBC has a price target of $10.50 for OZ.

The shares were trading at $8.94 this morning.