The OZ Minerals Limited (ASX: OZL) share price crashed this morning after brokers downgraded the copper miner following yesterday’s news on the delay of its Carrapateena mine.
The OZL share price tumbled 4.8% in morning trade to $10.43 – making it the second worst performer on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index.
An excuse to take profit
OZ Minerals announced that the start to its mega Carrapateena copper mine is pushed back by a month as a contractor had supplied the wrong parts. It also lowered the ore grade due to a redesign of the mine and has reclassified some capex items.
These factors aren’t significant to the valuation of the stock in the grand scheme of things, but it was enough to give some brokers an excuse to downgrade OZ Minerals after its recent stock share price run.
JP Morgan was one that took the opportunity to cut its recommendation on the stock to “underweight” from “neutral” as the stock was trading at the top-end of its trading range.
“We believe the stock has overshot on the upside, and following [yesterday’s] release (which lowers our valuation), we move to an Underweight rating with a A$9.60ps PT [price target] (~12% below the share price),” said the broker.
“We highlight 2020 guidance that is due to be provided in Jan 2020 could also surprise the market in terms of the level of investment still needed at Carrapateena (December capex alone was $30m, which has moved to pre-production).
Additionally, there is now lower near-term production.”
Citigroup also downgraded the stock, although it admitted that it had reluctantly done so. The broker lowered its recommendation to “neutral” from “buy” as it cut its price target to $12 from $12.40 a share.
“Delivering a big project, Carrapateena, on time and budget is no easy feat. Investors should look through the concentrate delay to OZL’s tempting future production profile, which still makes it a standout against ASX and global copper peers,” said the broker.
“There’s tension in our move to Neutral, as we balance the 10% monthly share price gain against further clarity on 2020 cashflows from Carrapateena, due mid Jan’20.”
Down but to out
But not all brokers think the stock’s strong run is about to end. Macquarie Group Ltd (ASX: MQG) made modest cuts to its earnings forecast but stuck to its “outperform” recommendation.
“The delay to first production at Carrapateena was not material in our view given the mine life and quality of the asset,” said Macquarie.
“The company is expecting to outline its CY20 production guidance at the release of its December quarterly production report in January, providing clarity to the market on the near-term outlook for Carrapateena.
“This is likely to be a significant near-term catalyst.”
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