OZ Minerals shares dip on rising copper production costs
The miner expects to outline its preferred funding model for its new $1.7bn nickel and copper mine before the end of the year, as its shares took a hit after hiking cost guidance.
OZ Minerals boss Andrew Cole says the company expects to outline its preferred funding model for its new $1.7bn nickel and copper mine before the end of the year, as OZ shares took a hit after hiking cost guidance.
OZ Minerals shares briefly dipped to an intraday low of $24.67 shortly after the open of trading, after the company released its September quarter results.
While the low point marks the first time OZ Minerals’ share price has dipped below the $25 a share offer BHP made for the company in August, its shares quickly rebounded and closed Monday at $25.11 – down 30c for the day.
While OZ maintained its 2022 copper production guidance of 120,000 to 135,000 tonnes, the company will need to hit its best quarter of the year to make even the bottom end of that range.
OZ Minerals’ Australian and Brazilian mines produced 87,757 tonnes copper to the end of September, and the company said a poor start to the year – in which its operations were hit by bad weather, a conveyor belt failure and a high level of absenteeism due to Covid-19 – had hurt its output and pushed up average cash costs of production.
The company said unit copper production costs had fallen 9.3 per cent from the June period, when they hit highs of almost $US1.43 per pound of copper produced.
But OZ Minerals is now flagging annual average costs of $US1.20 to $US1.35 a pound, from previous guidance of $US1.05 to $US1.20.
In January the company said it expected to produce 127,000 to 149,000 tonnes of copper in 2022 at an average cash cost of US85c to US95c a pound.
Mr Cole said he expected improvements at the company’s Prominent Hill mine to be maintained in the December quarter, after the mine hit record run rates for hauling underground ore in September as the mine’s workforce returned closer to full strength following Covid-19-related absenteeism in July and August.
But he told The Australian inflation levels that had hit the industry around wages and input costs were “sticky” and likely to push up production costs for some time.
“There’s absolutely cost inflation built into the unit cost increase – we’ve increased wages for our underground workforce as an example, to reflect the labour market that we see here at the moment,” he said.
But Mr Cole said he expected Prominent Hill to return to its position as a low-cost copper producer when OZ Minerals completes work on a shaft in 2025.
“By the time we install the shaft we will use very few trucks, whereas at the moment we’ve got a large underground mining fleet – which of course needs maintenance, labour etc,” he said.
“Whereas once you get to a shaft environment, those operating inputs are significantly reduced.”
With OZ Minerals also working on expansion plans at its Carrapateena mine in South Australia, as well as beginning early works at its planned $1.7bn West Musgrave nickel and copper mine in WA, Mr Cole said the long-term value of the company’s work was clear, irrespective of short-term production hiccups this year.
“Everybody agrees that long-term supply is challenged and long-term demand is growing the both (copper and nickel), so it is a sector that more and more of the medium to long-term funds are increasing their exposure to,” he said.
“Future customers who are looking for long-term supply arrangements from a shrinking supply base are starting to come back up the value chain to put things in place to secure that supply.”
After approving the development of West Musgrave in September, OZ Minerals opened the books of the project to potential partners in the project, with the company considering selling a minority share in the mine to help fund its construction.
Mr Cole said the company expected to be able to update shareholders on progress in finding a partner by the end of 2022, but had seen plenty of interest in the project so far.
“We are receiving a lot of inbounds on the product that we are intending to produce from Western Australia. A lot of other like-minded peer companies, of course, but increasingly – and more importantly, I think – downstream customers,” he said.
“So battery manufacturers, car manufacturers, and intermediaries between those looking to secure long-term arrangements.”
While detailed pricing negotiations for offtake from West Musgrave are still some way away, Mr Cole said he was confident the new mine could eventually command a price premium for its output.
“I am convinced that there will be structural pricing differences between commodities that can be produced with a very low to zero carbon footprint in a very environmentally friendly way, from safe jurisdictions that are not plagued by modern slavery concerns or issues of such and have very good relationships with their immediate stakeholders,” he said.
“Some groups that we are speaking with at the moment are only speaking to companies in Canada and Australia, as an example, because they are not prepared to go to alternate jurisdictions. So there is real evidence coming out of this process that is starting to point towards a structural pricing difference.”
