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Why the OZ Minerals share price jumped as profit crashed

You don’t always need strong earnings growth to lift a stock. In fact, copper miner OZ Minerals Limited (ASX: OZL) found out today that a big drop in profit isn’t a hinderance either.

The OZL share price jumped 1.4% to $9.05 in early trade when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index struggled to hold at breakeven after management reported an interim net profit that fell by two-thirds from the same time last year to $43.9 million.

OZ Minerals isn’t the only one starting the trading day on the front foot. Investors are taking the opportunity to top-up their holdings in gold stocks with the Newcrest Mining Limited (ASX: NCM) share price jumping 3% to $36.58 while the BHP Group Ltd (ASX: BHP) share price and Rio Tinto Limited (ASX: RIO) share price added around 0.5% each.

Frydenberg’s new best friend

It’s the lack of unpleasant surprises and a positive second half outlook in OZ Minerals’ results that is helping drive the stock higher.

The big drop in earnings in the first six months to end of June was due to the delays in ore shipments into the 3QFY19 (its financial year is the same as the calendar year), a slight dip in the Australian dollar copper price and an increase in capex, according to OZ Minerals chief executive Andrew Cole.

That news should please Treasurer Josh Frydenberg, who has been criticised by some business leaders for pushing companies to invest more in growth instead of focusing on dividends and capital returns.

Cole scored an extra point too when he held the interim dividend steady at 8 cents a share despite boasting about the miner’s solid cash generation.

No new news is good news

There’s nothing new in OZ Mineral’s full year product and cost guidance either. The key figures it put out is the same as the forecast it highlighted in its June quarterly report last month.

But sometimes all investors need is reassurance. It’s flagship Prominent Hill project continues to hum along while Carrapateena is also on track to deliver its first sales in the current half.

“Significant progress was made at Carrapateena with above ground construction nearing completion and over 100,000tonnes of development ore stockpiled,” said Cole.

“The project is expected to deliver first saleable concentrate in November for a capital cost of A$920million-A$950 million, with 2019 Growth Capital Expenditure of A$540million-A$570 million continuing to track to guidance.”

Positive outlook to support

The miner has also identified further value-add opportunities at its West Mulgrave project over the next six months as it progresses its pre-feasibility study, which should be completed by early 2020.

“The outlook for revenue is positive with 2019production tonnes committed for the remainder of the year and smelter demand rebounding strongly in the second half,” said Cole.

“Underground production rates at Prominent Hill continue to improve and C1 costs are currently expected to finish the year at the lower end of guidance.”

Let’s hope the copper price holds up well in the face of the US-China trade war.

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Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited, OZ Minerals Ltd and Rio Tinto Ltd. Connect with him on Twitter @brenlau.

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.

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