MARKETS SPECTATOR: OZ Minerals in trouble?

OZ Minerals has slashed its copper output forecasts and the outlook for gold and silver prices won't help its cause.

Oz Minerals says it prepared the market for higher costs, higher waste and lower production. But that hasn’t stopped the stock being battered today, down as much as 8.2 per cent to $4.38, adding to a dismal year in which the shares of Australia’s third-biggest copper producer have slumped 52 per cent.

The company’s copper production for the 12 months to December 31 will now be between 82,000 tonnes to 88,000 tonnes, a drop of as much as 14 per cent from a previous guidance of 90,000 to 95,000 tonnes. In the last three years of production Oz Minerals has had annual production rates of between 100,000 to 110,00 tonnes. This year the company is hauling away more waste than previous years. It has also experienced a landslip at its Malu pit. The company describes the slip as minor.

In 2013, according Oz Minerals, there will be 11 to 12 trucks hauling away waste for every truck of ore the company can sell. Moreover, the company gave guidance that its production costs are set to rise to 165 to 180 US cents per pound from 150 to 160 US cents per pound, an increase of as much as 20 per cent.

More damaging to the company’s top and bottom line is the copper price, says Oz Minerals. At US$3.15 a pound, copper has dropped 12.5 per cent from its average price last year. Oz Minerals also mines gold as a byproduct of its copper production. Gold’s 9.3 per cent slump on April 15, its biggest one-day drop since March 1980, has further hurt the stock. Credit Suisse expects the average gold price this year to be $US1,580 a troy ounce compared with some forecasts of $US1,800. Oz Minerals also sells silver as a byproduct of its copper production. Credit Suisse forecasts that metal’s average price in 2013 to be $US28.50 an ounce compared with an average price in 2012 of $US31.30.

While Oz Minerals shares were sliding, rival Sandfire Resources shares gained as much as 2.6 per cent to $6.01. In this volatile environment for global commodity prices and demand, any negative news by a miner is likely to be punished by investors. Oz Minerals forecasts for production cuts and higher costs may continue to hurt the stock, especially if the global price for copper slips.