OZ shares tumble as lower yields at copper mine continue
OZ had always warned that 2013 would be typified by lower yields as it chewed through lower-grade ores at Prominent Hill in a bid to access more favourable ground below.
But the struggling miner revealed on Wednesday that more optimisation work was required, and shareholders would not start to see the benefits of that work until the latter months of 2014.
Production guidance for 2014 will now be little better than 2013, with no more than 80,000 tonnes of copper and 140,000 ounces of gold to be delivered.
JPMorgan had expected 2014 copper guidance to be closer to 90,000 tonnes in October.
"Obviously it's not as high as the market had expected, but it is higher than in 2013 and there's more confidence in those numbers," said OZ managing director Terry Burgess.
The news came on the same day that OZ updated the market on the geological composition of the Prominent Hill precinct, which - due partly to higher standards being enforced under new reporting guidelines - saw the company's official resource size decline by 26 per cent.
The combination of information sent OZ shares tumbling by more than 30 per cent in early trading, but the losses were contained to 15 per cent by the close as the market digested the quirks of the new reporting code.
The 44¢ decline to $2.65 means OZ is fetching its lowest price since July 2002 and is rapidly losing ground to rival ASX-listed copper miners PanAust and Sandfire Resources.
Both rivals now have bigger market capitalisations, and the Sandfire comparison is particularly galling for OZ, given it was touted as a probable acquirer of Sandfire when it purchased 19 per cent of the company three years ago.
OZ was close to 11 times bigger than Sandfire back then, but now has a market capitalisation that is about $100 million smaller than the West Australian upstart.
On the positive side, new underground developments at Prominent Hill mean the precinct could continue producing beyond 2022, rather than 2018 as previously believed.
Frequently Asked Questions about this Article…
OZ Minerals shares tumbled due to a combination of factors, including lower-than-expected production guidance for 2014 and a 26% decline in the company's official resource size at the Prominent Hill precinct. These developments led to a significant drop in share price, although the losses were partially contained by the end of trading.
The production outlook for OZ Minerals in 2014 is not much better than in 2013, with expectations of delivering no more than 80,000 tonnes of copper and 140,000 ounces of gold. This is slightly below market expectations, but the company remains confident in these numbers.
The market reacted negatively to OZ Minerals' recent announcements, with shares initially tumbling by more than 30% in early trading. However, the losses were contained to 15% by the close as investors digested the new reporting guidelines and production outlook.
OZ Minerals is facing challenges at the Prominent Hill mine due to lower yields from processing lower-grade ores. The company is working on optimization efforts to access more favorable ground, but benefits from these efforts are not expected until late 2014.
OZ Minerals is currently losing ground to its ASX-listed rivals, PanAust and Sandfire Resources, both of which now have larger market capitalizations. This is particularly notable given OZ Minerals' previous position as a potential acquirer of Sandfire.
Despite current challenges, there are positive prospects for the Prominent Hill mine. New underground developments suggest that production could continue beyond 2022, extending the mine's operational life beyond previous expectations.
New reporting guidelines have contributed to a 26% decline in OZ Minerals' official resource size at the Prominent Hill precinct. This has affected the company's market valuation and share price.
OZ Minerals is focusing on optimization work to improve yields at the Prominent Hill mine. While this work is ongoing, the company expects shareholders to start seeing benefits from these efforts in the latter months of 2014.
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