Why the OZ Minerals (ASX:OZL) share price hit a 10-year high today

The OZ Minerals Limited (ASX: OZL) share price defied the gloom to surge to its highest in a decade this morning even as the ASX 200 tumbled.

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The OZ Minerals Limited (ASX: OZL) share price defied the market gloom to surge to its highest in a decade this morning.

The OZL share price jumped 3% to $15.62, making it the third best performing stock on the S&P/ASX 200 Index (Index:^AXJO).

The outperformance of the copper miner is only bettered by the Healius Ltd (ASX: HLS) share price and Southern Cross Media Group Ltd (ASX: SXL) share price at the time of writing.

OZ Minerals share price turning gold

OZ Minerals quarterly production report is the key reason why the stock is rallying when the ASX 200 is crashing 1.1%.

The miner upgraded its gold production guidance for 2020 thanks to a strong showing at its flagship Prominent Hill project.

Surprising production upgrade

OZ minerals expects to deliver between 242,000 and 259,000 ounces of the precious metal this year. That’s up from its earlier estimate of 227,000 to 249,000 ounces.

The timing of the production increase couldn’t be sweeter as the gold price is hovering close to record highs and is now fetching over US$1,900 an ounce.

Little wonder why the OZ Minerals share price is reacting so positively!

What the gold output upgrade essentially means is a drop in operating costs for the group. Management believes that C1 cash cost for 2020 will range between zero and US15 cents a pound of copper. This compares to its earlier projections of US10 cents to US25 cents a pound.

OZ Mineral could be mining for free?

That’s a pretty incredible outcome as profit from the sale of gold may totally offset the cost of mining the industrial metal.

Gold is seen as a by-product for OZ Minerals, which sells the yellow metal to bring down the cost of its copper operations. The C1 cost refers to the operating expenses and doesn’t include capex to find new copper deposits to replace what is being mined.

The all-in sustaining costs, which is a more holistic reflection of real expenses, is also expected to be lower than originally forecasted. This will come in between US60 and US75 cents a pound versus the US70 to US85 cents earlier estimate for 2020.

Management made no changes to its copper production guidance. This is tipped to be 88,000 to 105,000 tonnes for the year.

Rise in copper adds to OZ Minerals share price rise

The pleasing production report may not be the only driver for the stock today. The copper price jumped 1.6% to around US$3.19 a pound due to supply disruption from Chile, the world’s largest copper exporter.

This also explains why the Sandfire Resources Ltd (ASX: SFR) share price is also outperforming the market today.

The gold price is also faring well with the precious metal gaining 0.7% to US$1,923 an ounce.

The outlook for both commodities is bright despite economic impact from COVID‐19. The OZ Minerals share price is likely to be well supported going forward. There’s a lot of profit margin for the miner to make at current prices.

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Motley Fool contributor Brendon Lau owns shares of OZ Minerals Limited. 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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