The Writedowns of OZ

Gold and copper miner OZ Minerals (ASX: OZL) has today disappointed the market with a $268 million loss for its financial first half, largely on the back of a $232m writedown.

The company has given a positive outlook, with the Prominent Hill mine ready to recommence full production after repairs were conducted to fix damage caused by a slip. Cash flow is expected to be “significant” from that mine, but OZ will still need a significantly higher gold and copper price to allow it to return to profitability over the medium and long term.

OZ Minerals is just the most recent mining company to take writedowns, on the back of impairments from BHP Billiton (ASX: BHP) and Rio Tinto (ASX: RIO) earlier this year and Newcrest (ASX: NCM) and Silver Lake (ASX: SLR) more recently.

Foolish takeaway

While it’s true that “the plural of anecdote isn’t ‘trend’”, investors should rightly be concerned about the billions of dollars that were wasted by mining company directors and executives chasing overpriced acquisitions in the past.

On the evidence, investors should be very scared any time a miner gets the chequebook out.

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Motley Fool advisor Scott Phillips doesn’t own shares in any company mentioned in this article.

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