OZ slumps on copper downgrade

OZ Minerals shares plunged to a 10-year low after it conceded it would produce about 8 to 10 per cent less copper than forecast this year.

OZ Minerals shares plunged to a 10-year low after it conceded it would produce about 8 to 10 per cent less copper than forecast this year.

The downgrade was linked to a wall slide at the company's flagship Prominent Hill mine in South Australia that could take until August to be remediated.

OZ will now produce between 82,000 and 88,000 tonnes of copper this year, rather than the 90,000 to 95,000 tonnes originally promised.

That original guidance was significantly lower than previous years, as mining at the ageing Prominent Hill mine started to push into harder, lower-grade ores.

Based on Monday's benchmark price for copper, the lost production will be worth about $US52 million in lost revenue and the bad news helped drag the stock down by more than 10 per cent on Monday.

The 51ยข fall to $4.30 means the stock has not been this low since April 2003, and apart from an improvement in copper and gold prices, there appears to be few things that can lift the OZ share price soon.

Prices for copper and gold have slumped in recent weeks, and OZ managing director Terry Burgess said that, combined with the wall slide, meant OZ Minerals had barely broken even for the March quarter.

But he said the new copper guidance was conservative, and he hoped to hit the higher end of the range.

"The lower end of the guidance really is to cater for any unexpected activities which are beyond the actual work we plan to do," he said.

Gold production at the mine is expected to remain unchanged this year at 130,000 to 150,000 ounces.

Future years at Prominent Hill are planned to mine better grades of copper, and with development of the nearby Carrapateena deposit going well, Mr Burgess said the company still had reason to be optimistic.

While production costs are soaring on the back of the lower grades and the wall slide - OZ produced at $US3.23 a pound of copper in the March quarter - the company has a strict cost-cutting program under way across the rest of the business.

Contractor costs have been cut by more that 20 per cent in some cases, and Mr Burgess said pay had been frozen for all employees apart from the lowest two pay levels. "It started with us [the executive team] and filtered down throughout the rest of the team," he said.

Credit Suisse analysts Michael Slifirski and Sam Webb described the March-quarter results as "very disappointing".

IG markets analyst Evan Lucas said OZ executives might encounter some angry shareholders at the company's annual meeting in Melbourne on May 28.

Share price comparisons over a decade can be deceptive with OZ Minerals, given the company only came into its current structure in 2008 when two companies - Oxiana and Zinifex - merged to become OZ.

But nonetheless, the share price has never been lower since the company took on its current structure.

OZ also said on Monday that it had paid $2.2 million to Straits Resources for seven exploration tenements close to its Carrapateena deposit.

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