OZ Minerals Limited shares surge on broker upgrade: is it a buy?

One of the best performing shares in the resources sector today has been copper and gold producer OZ Minerals Limited (ASX: OZL). Despite the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) dropping sharply, just after lunch its share price had risen by over 4% to $6.63.

Interestingly today’s gain comes a day after the company reported its interim results which saw Oz Minerals deliver revenue growth of 8% to $398 million and underlying net profit after tax growth of 3% to $55 million.

Those results received a lukewarm response from the market yesterday, but today it has clearly been a very different story. This is perhaps thanks largely to a research note released by global investment bank Canaccord Genuity, which stated that it believes Oz Minerals’ risks and uncertainties are being overplayed. As a result, the investment bank upgraded Oz Minerals to a buy rating this morning.

So should you follow suit and buy Oz Minerals shares?

As with every resources share the decision to buy, sell, or avoid it will ultimately depend on the direction that the prices of certain commodities take. For Oz Minerals the price of copper and gold are the two to look out for.

Last week Bloomberg reported that US investment bank Goldman Sachs has forecast the copper price to slump over the next 12 months as demand softens. Being one of the world’s lowest operating cost copper producers I feel Oz Minerals would be able to weather the storm, but the bumper earnings growth that would justify paying 21x earnings today may be hard to come by.

As for gold, it really is anybody’s guess. There are a number of global events coming in the next few months which could potentially cause investors to head to safe haven assets and cause the gold price to rise. But as always only time will tell if this is the case.

In my opinion, Oz Minerals is a great company that would be a fantastic investment if the price of copper were to rise. Its low costs, strong cash balance, and zero debt make it one of the more attractive options in the resources sector alongside gold miner St Barbara Ltd (ASX: SBM) and iron ore producer Fortescue Metals Group Limited (ASX: FMG).

But for now, I would suggest putting it on your watchlist and keeping a close eye on the price of copper.

Finally, instead of investing in Oz Minerals I would highly recommend checking out these three "new breed" blue chips. 

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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