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How the OZ Minerals share price is benefitting at Rio Tinto’s expense

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The stars are aligning for the OZ Minerals Limited (ASX: OZL) share price. The miner posted a big rise in earnings this morning and the outlook for its key commodities is shining bright for 2021.

The news sent the OZL share price jumping 2.1% to a nine-year high of $14.39 in early trade as the S&P/ASX 200 Index (Index:^AXJO) gained 0.1%.

The copper and gold miner posted an 82% surge in first half net profit to $79.8 million on the back of a 37% uplift in revenue to $575.7 million.

The good result allowed OZ Minerals to keep its interim dividend steady at 8 cents a share. Some may find somewhat miserly given the big rise in profit and operating cash flow to $150.7 million ($49.5 million higher than 1H 2019).

OZ Minerals rockin’ profit results

Good thing OZ Minerals has never been regarded as an income stock with its yield consistently coming in at or below CPI.

The reason to buy OZ Minerals is because its very well placed to benefit from copper and gold. The precious metal in particular is a big reason why the miner delivered a big uplift in profits.

There are reasons to be a copper bull too, especially as Rio Tinto Limited (ASX: RIO) downgraded its copper production output by 15%, according to the Australian Financial Review.

What’s more, the world’s largest copper mine, Escondida in Chile that’s owned by BHP Group Ltd (ASX: BHP) and Rio Tinto, is also likely to produce less than expected over the next two years.

Multiple tailwinds for OZ Minerals share price

In contrast, OZ Minerals isn’t experiencing any production difficulties. If anything, its key mines are humming along very nicely and management plans to expand production.

“The ramp-up at Carrapateena during the half year has exceeded expectations with a strong performance from the underground materials handling system, production system and plant allowing an increase to production guidance,” said its chief executive Andrew Cole.

“The Prominent Hill underground is performing well, and we have seen annualised ore mining rates of ~4.5Mtpa achieved through July.”

Advancing while rivals retreat

It’s a case of making hay while commodity prices are rising. Management is recommitting $45 million in growth capex funding for Carrapateena, which is on track to achieve 4.25Mtpa run rates by year-end.

It’s also putting in up to $9 million in new growth funding for Prominent Hill to accelerate underground decline development to begin mining the western side of the Malu orebody.

A better value buy to OZL share price?

Experts believe OZ Minerals is the ASX miner with the best leverage to copper, and the underperformance of the Sandfire Resources Ltd (ASX: SFR) share price says it all.

However, one wonders if the pricing gap between the two will start to close given the big rally in the OZL share price. The stock surged by 54% over the past year when the SFR share price tumbled 12%.

Bargain hunters may find the ugly duckling more enticing if the copper price lives up to bullish expectations.

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Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited, OZ Minerals Limited, Rio Tinto Ltd and Sandfire Resources Ltd. Connect with me 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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