Bumper prices a goldmine for OZ

Bumper copper and gold prices enabled OZ Minerals to achieve record operating cash flow of $388.3 million in the June half.

By InvestSMART · 17 Aug 2011

By InvestSMART ·
17 Aug 2011

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Bumper copper and gold prices enabled OZ Minerals to achieve record operating cash flow of $388.3 million in the June half.

BUMPER copper and gold prices enabled OZ Minerals to achieve record operating cash flow of $388.3 million in the June half.

But a previously announced litigation settlement, foreign exchange losses and a write-down of its investment in a uranium explorer combined to reduce reported profit to $113.9 million, from $405.7 million previously.

A better indication of the continuing profit performance from the group's Prominent Hill copper/gold mine in South Australia was the $189.1 million ''underlying'' profit reported by the company.

That was down from $230.5 million previously, and was below market expectations, due to increased costs at the mine, with higher volumes of lower-grade material treated.

A 30?-a-share (unfranked) dividend is to be paid on September 16 after books close on August 29. The payment will absorb $97.2 million. OZ remains on the hunt for an acquisition to increase its mining portfolio. It is well funded for a move, with $750 million earmarked for an acquisition from the group's cash balance at June 30 of $905.6 million.

In addition, the company yesterday revealed it had secured a $200 million bank debt facility to give it greater flexibility when considering ''internal and external growth opportunities''.

OZ managing-director Terry Burgess said shareholders ''remained pretty happy'' about the level of cash it had ahead of surplus cash being committed to an acquisition.

''As from tomorrow we can activate our ($200 million) buyback, which can take off some of the excess cash,'' he said. ''I don't get the impression from our shareholders that they want us to rush into something that doesn't make sense. What they want us to do is to find the right transaction and if it adds value for shareholders, then proceed on that.''

Mr Burgess confirmed that a decision on whether OZ would sell its Cambodian gold interests would be made by the end of the year.

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Frequently Asked Questions about this Article…

What drove OZ Minerals to a record operating cash flow of $388.3 million in the June half?

Bumper copper and gold prices were the main driver — higher commodity prices lifted revenues and enabled OZ Minerals to report a record operating cash flow of $388.3 million for the June half.

If cash flow was strong, why did OZ Minerals' reported profit fall to $113.9 million?

Despite strong cash flow, reported profit was reduced by a combination of items: a previously announced litigation settlement, foreign exchange losses, and a write-down of its investment in a uranium explorer. These one-off items cut reported profit to $113.9 million from $405.7 million previously.

What was OZ Minerals' underlying profit and how did Prominent Hill perform?

The company reported an 'underlying' profit of $189.1 million, which provides a clearer view of ongoing performance from the Prominent Hill copper–gold mine. That figure was down from $230.5 million and below market expectations, mainly because of higher costs and treating larger volumes of lower‑grade material at the mine.

Is OZ Minerals paying a dividend and what are the payment details investors should know?

Yes. OZ Minerals declared a 30-cent-per-share unfranked dividend to be paid on September 16, with the books closing on August 29. The dividend payment will absorb $97.2 million of the company’s cash resources.

What are OZ Minerals’ plans for its surplus cash — will it buy back shares or pursue acquisitions?

OZ Minerals is pursuing both options. It has about $905.6 million in cash at June 30 and has earmarked $750 million from that balance for an acquisition. Management also said it can activate a $200 million buyback immediately. The priority is finding the right transaction that adds shareholder value rather than rushing into deals.

How does the $200 million bank debt facility affect OZ Minerals’ growth strategy?

The newly secured $200 million bank debt facility gives OZ Minerals greater flexibility to consider internal and external growth opportunities. It complements the cash on hand and earmarked acquisition funds, making it easier to move on acquisitions or other growth options when they arise.

Will OZ Minerals sell its Cambodian gold interests and when will a decision be made?

Management confirmed that a decision on whether to sell the Cambodian gold interests will be made by the end of the year, according to the company’s update.

How do changes in copper and gold prices impact OZ Minerals’ financial results?

The article shows that higher copper and gold prices materially improve OZ Minerals’ operating cash flow and profitability — the recent ‘bumper’ prices helped deliver record cash flow. However, mine costs and ore grade also affect underlying profit, so commodity prices are an important but not sole driver of results.