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Oz Minerals shares slammed down 30%

Copper and gold miner, Oz Minerals (ASX: AZL) has seen its share price smashed, dropping 13% to $2.69 in late afternoon trading, after the company gave a downbeat production forecast.

Shares have recovered somewhat, after dropping as low as $2.11 – a fall of more than 30% earlier this morning. OZ Minerals downgraded its resources at its flagship Prominent Hill mine by around 26%, with much of that due to worse than expected ore grades at deeper levels. Oz Minerals was expecting to see higher grades, and therefore potentially lower production costs in the years ahead, but that now appears to be more hope than anything else.

The company says it is on track to meet its production guidance of 70,000 to 75,000 tonnes of copper and 120,000 to 130,000 ounces of gold in 2013. Production for 2014 is expected to be slightly higher of between 75,000 to 80,000 tonnes of copper and between 130,000 to 140,000 ounces of gold.

Buy beyond 2014, OZ Minerals says gold production could fall, although it is expected to be at least 95,000 ounces per year. The good news is that Prominent Hill’s mine life could be extended, and may now continue production until 2022.

Oz Minerals has disappointed investors for some years now. Despite a massive cash balance of $433 million as at the end of June 2013, the company has made no real moves to firm up alternatives to Prominent Hill, once it has been mined out. At one stage, it appeared that OZ Minerals would make a move on fellow copper producer Sandfire Resources (ASX: SFR), in which it holds a 19% stake, but nothing has come of it.

Oz Minerals also holds 28.5% in uranium explorer Toro Energy (ASX: TOE), 5.5% of Minotaur Exploration (ASX: MEP), 16.3% in Renaissance Minerals (ASX: RNS), 8.6% of IMX Resources (ASX: IXR) and 1.6% of Beadell Resources (ASX: BDR).

Foolish takeaway

Investors may be running for the exits not merely on the back of the resource downgrade, but potentially management’s indecision over its cash stash, and other disappointing news coming out of the company. From our perspective, OZ Minerals is not what we would term investment grade.

 

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Motley Fool writer/analyst Mike King owns shares in Beadell Resources. You can follow Mike on Twitter @TMFKinga

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