The OZ Minerals Limited (ASX: OZL) share price is outperforming its peers and the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index after it posted its December quarterly production update.
The OZ Minerals share price gained more than 1% to $9.26 in morning trade even as the BHP Group Ltd (ASX: BHP) share price and Rio Tinto Limited (ASX: RIO) share price slipped into the red as the broader market struggled to keep its head above breakeven.
Shareholders of OZ Minerals can thank the copper and gold miner's flagship Prominent Hill mine for the rally. Management reported that output from Prominent Hill has exceeded its full year guidance while costs have come in under expectations.
Production guidance beat
While copper production at the mine slipped to 26,599 tonnes in the three months to end December last year compared to 28,915 tonnes in the previous quarter, it was enough to lift output for 2018 to 110,111 tonnes when management was forecasting production of 100,000 to 110,000 tonnes.
Meanwhile, gold production increased in the latest quarter to 37,719 ounces, or 11% ahead of the three months to September, to take total gold output for the year to 130,856 ounces. Management had been guiding for a range between 120,000 and 130,000 ounces.
What will please investors just as much is that cost inflation appears to be well under control. OZ Minerals' C1 cash cost in the December quarter at Prominent Hill dropped to the lowest level this year at US51.6 cents an ounce with the average C1 cost for the year coming in at US73.2 cents an ounce.
Better than expected cost control
The more inclusive all-in-sustaining cost (AISC) also fell to its lowest level for 2018 at US97.1 cents an ounce for the quarter and US114.4 cents per ounce for the year.
In contrast, management had been guiding for a C1 cost of US75 cents to US85 cents an ounce, and AISC of US120 cents and US130 cents per ounce.
Cost inflation has been an issue for many companies both inside and outside the resources sector, so the better than expected cost figures from OZ Minerals is a pleasant surprise.
The miner is also cashed up as it reported a healthy cash balance of $505 million after paying for expansion works at its mines.
Foolish takeaway
However, investors may not see much of a production increase this year even though its Carrapateena mine is expected to start ramping up.
Management is forecasting total copper production from Prominent Hill and Carrapateena to range between 97,000 tonnes and 109,000 tonnes, while gold output is tipped to come in at 118,000 and 131,000 ounces in 2019.
Nonetheless, I hold an upbeat view on OZ Minerals. Assuming we don't slip into a recession, the copper market is expected to tighten in 2020.
