The worst performer on the ASX 200 on Wednesday has been the OZ Minerals Limited (ASX: OZL) share price.
The copper producer's shares fell a sizeable 6.5% this morning to $10.81. And while they have recovered slightly, they are still down 4% at the time of writing.
Why is the OZ Minerals share price sinking lower?
The catalyst for today's share price weakness appears to have been a broker note out of Goldman Sachs this morning.
According to the note, the broker has downgraded the company's shares to a sell rating from neutral and cut the price target on them by 11% to $8.70.
Goldman made the move due to concerns over the commissioning risk at its Carrapateena operation over the next 6 months, its stretched valuation, and the potential for further delays to the remaining portfolio including West Musgrave.
In respect to Carrapateena, it believes OZ Minerals is entering a commissioning risk phase with the ramp-up of its stage 1 sub-level cave underground mine in the current quarter and into 2020. It notes that the company recently delayed its first concentrate, increased its capex, and downgraded the reserve grade.
Goldman said: "The mine is already 1 month late with first production that is now expected in December 2019 and capex has increased by A$50mn. The 4.25Mtpa plant will operate on a campaign basis for the first 12 months as the mine ramps-up according to recent comments from OZL."
"Based on the recent reserve grade downgrade (from 1.8% Cu to 1.6% Cu) we also think mined grades could be well below reserve grade in the first 12 months. On our estimates, Carrapateena will be FCF negative by A$160-180mn in 2020 and OZL will also be FCF negative at the group level, with risks of a slower ramp-up and larger cash outflows," it added.
And while the broker sees OZ Minerals as one of only a few global copper producers with attractive growth prospects, it isn't enough to stop it downgrading its shares.
OZ Minerals isn't the only company that was downgraded by Goldman Sachs. This morning it downgraded Redbubble Ltd (ASX: RBL) shares to a neutral rating from buy. This was in response to its disappointing trading update this month.
