The share price of copper and gold miner OZ Minerals Limited (ASX: OZL) is bucking the downward trend this morning after it posted its latest quarterly results.
Oz Mineral’s 0.7% gain to $9.02 looks impressive given that the materials sector was the only one in the S&P/ASX 200 (Index:^AXJO) (ASX: XJO) index that’s losing ground as heavyweights like BHP Billiton Limited (ASX: BHP), Rio Tinto Limited (ASX: RIO) and South32 Ltd (ASX: S32) fell into the red.
The miner can thank its strong quarterly result for the uplift as copper production increased 18% in the September quarter over the previous quarter to 31,919 tonnes, while gold jumped 39% to 36,601 ounces.
The improved performance is due to a ramp-up at its flagship Prominent Hill mine and production start at Antas in Brazil.
Copper production at Prominent Hill is likely to hit the top end of its FY18 guidance of between 100,000 and 110,000 tonnes but that’s not the only reason why investors are excited. Oz Mineral’s financial year is the same as the calendar year.
Oz Minerals is managing to keep a handle on costs with all-in-sustaining costs (AISC) at the mine expected to come in at the lower end of its US$1.20 to US$1.30 a pound guidance range for the year.
No doubt the rebound in the gold price is helping to keep costs in check although some credit has to be given to the weakening Australian dollar given that Prominent Hill is based in South Australia.
Management also added that the adjacent Carrapateena project is on track to produce its first concentrate in the December quarter of 2019. Carrapateena has an output of 4.2 million tonnes a year when fully ramped-up and a mine life of 20 years.
What’s more, Oz Minerals is growing increasingly confident in the potential of its copper and nickel West Mulgrave joint-venture during recent testing work and has a healthy cash position with $454 million sitting on its balance sheet.
There isn’t much not to like in the third quarter update and the stock is looking like a “buy” to me.
While there’s downside risk to the copper price in the near-term from the threat of a slowing Chinese economy under pressure from the Trump trade war and speculation about an excess supply of the red metal, I think the longer-term outlook for the commodity is positive.
This is because of underinvestment by miners to find and replace depleting mines and the growth of electric vehicles.
The US copper industry association, Copper Development Association Inc., estimates that a conventional combustion engine car needs 18 to 49 pounds of copper but a battery-powered vehicle requires 183 pounds – or between 4-10 times more copper per vehicle.
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Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited, Rio Tinto Ltd., and South32 Ltd. 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 Scott Phillips.