Copper and gold miner OZ Minerals Limited (ASX: OZL) upped its dividend and reported a big increase in operating cash flow although earnings were flat from the previous year.
But the flat result shouldn’t faze investors as 2017 marked a big step change in earnings for the miner and cash flow is really what investors are more focused on for the mining sector.
This isn’t to say the OZL share price couldn’t come under pressure from profit taking this morning as the OZ Minerals share price has surged 22% since the start of this calendar year.
To put that in perspective, the BHP Group Ltd (ASX: BHP) share price gained 11.5%, Rio Tinto Limited (ASX: RIO) jumped 20.5% and the broader S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index increased 10% since January.
Flat earnings but stronger cash
OZ Minerals flat underlying net profit of $228 million is commendable given that the miner upped its growth capex by $46 million in 2018 (its financial year is the same as the calendar year).
What’s more, it’s flagship Prominent Hill mine recorded a 6% increase in earnings before interest, tax, depreciation and amortisation (EBITDA) as the fall in the copper price was more than offset by production increases.
Operating cash flow jumped 31% to $450 million with management reporting a robust cash balance of $505 million.
OZ Minerals increased its final dividend by 1 cent a share to 15 cents a share, which takes its total dividend to 23 cents per share or 15% above 2017.
Not quite enough to attract income investors but OZ Minerals will appeal to those looking for exposure to copper.
Experts believe the copper market will be tight from 2020 due to the lack of investment by the mining industry although the slowing global economy could dampen the outlook for the commodity.
That’s why negotiations between the US and China on the ongoing trade war will be closely watched. If the world’s two largest economies can resolve their trade dispute, the copper price could jump.
Indications are that US President Trump’s hard-line is softening as the trade war is causing pain to both nations. The strategy also fits with Trump’s negotiation tactic of going in hard before giving ground.
OZ Minerals is a good way to gain exposure to this outcome, particularly because it sits low on the production cost curve and will get an extra benefit from a weaker Australian dollar.
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Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited and Rio Tinto 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.