Cashed-up OZ looks for good deals to add to its portfolio

BUMPER copper and gold prices allowed OZ Minerals to achieve a 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 allowed OZ Minerals to achieve a 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 - because of 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 funding flexibility when considering "internal and external growth opportunities".

The managing director of OZ, Terry Burgess, said shareholders "remained pretty happy about the level of cash that we've got" 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."

Last week's equity markets volatility was set to create some acquisition opportunities among companies without OZ's cash bank, Mr Burgess said.

But the volatility had mostly passed. "The volatility was so rapid ... it was very difficult to spot who was a wounded bird and who wasn't," he said. "I think we need to probably have a sustained period when we can identify who is wounded and who is not. But certainly ... our cash becomes more important to us if people's share prices fall."

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

Given the lack of recent exploration success, a sale of the known 605,000 ounce Okvau deposit is expected.

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Frequently Asked Questions about this Article…

What drove OZ Minerals' record operating cash flow in the June half?

OZ Minerals reported a record operating cash flow of $388.3 million in the June half, driven primarily by bumper copper and gold prices, which boosted cash generation from its mining operations.

Why did OZ Minerals' reported profit fall even though cash flow was strong?

Reported profit fell to $113.9 million from $405.7 million because the company recorded a previously announced litigation settlement, foreign exchange losses and a write-down of its investment in a uranium explorer, which reduced headline earnings despite robust operating cash flow.

What is OZ Minerals' 'underlying' profit and what affected it?

OZ Minerals disclosed an underlying profit of $189.1 million, a measure that better reflects ongoing performance from assets like the Prominent Hill copper/gold mine. It was down from $230.5 million mainly due to higher costs at Prominent Hill as the company treated greater volumes of lower‑grade material.

Is OZ Minerals paying a dividend and what are the key dates?

Yes. OZ Minerals announced a 30-cent-per-share unfranked dividend, payable on September 16. The record (books close) date is August 29, and the dividend payment will absorb about $97.2 million.

How much cash does OZ Minerals have for potential acquisitions and what financing is in place?

As at June 30, OZ Minerals had a cash balance of $905.6 million, with $750 million earmarked for an acquisition. The company also secured a $200 million bank debt facility to increase funding flexibility and has the ability to activate a $200 million buyback to deploy excess cash.

Is OZ Minerals actively looking to buy other mining assets right now?

Yes, OZ Minerals is on the hunt for acquisitions to grow its mining portfolio, but management says it won't rush into deals. The company is well funded and will prioritise transactions that add value for shareholders, waiting for clear opportunities rather than acting amid short-term market noise.

How does market volatility affect OZ Minerals' acquisition strategy?

Management said recent equity market volatility briefly created potential targets among less-cash-rich companies, but much of that volatility had passed. OZ Minerals prefers a sustained period of weakness where it can identify genuinely distressed assets — its cash becomes more important if share prices fall and clear opportunities emerge.

What is the status of OZ Minerals' Cambodian gold interests and the Okvau deposit?

OZ Minerals confirmed it will make a decision on whether to sell its Cambodian gold interests by the end of the year. Given a lack of recent exploration success, a sale of the known 605,000-ounce Okvau deposit is expected.