Morningstar | Another Strong Quarter for Oz Minerals, AUD 11 FVE Maintained
No-moat Oz Minerals’ second quarter provided more data points to support our positive view of management. Prominent Hill production was strong, potentially tracking to better 2019 guidance. The development of Carrapateena is importantly on budget and schedule. It grows output and extends life while preserving low operating costs similar to Prominent Hill’s. All of this helps support our key assumptions and our unchanged AUD 11 per share fair value estimate. With weaker base metals prices, and some concern around the company’s Brazilian assets, the shares screen as slightly undervalued.The firm's effort to build its pipeline of development projects in the past few years has particularly impressed. The methodical approach to option and value creation has borne fruit, notably with valuable enhancements at Carrapateena and life extensions at Prominent Hill. The acquisition of Brazil-based Avanco Resources presented some challenges with copper resources at the Antas mine and Pedra Branca deposits downgraded compared with the previous owner's estimates. However, management actions have preserved the acquisition value and we remain confident in the firm’s ability to execute.
Some of the negative from lower copper resources in Brazil is offset through reduced costs. Management expects to materially lower Pedra Branca’s capital cost by trucking ore to Antas, instead of building a new dedicated processing plant. The recently completed prefeasibility study of the CentroGold deposit, also in Brazil, was also better than we expected. The study estimates production of 100,000 to 120,000 ounces of gold a year on average, at a low all in sustaining cost of USD 640 per ounce. Life is at least 10 years. Exploration acreage around CentroGold has greatly increased. We see options to extend life, and potentially expand longer term, through near-mine and regional exploration. At this stage though, the upside is too speculative and immature to bake into our fair value estimate.
OZ Minerals is a mining company engaged in exploring for, developing and operating copper, gold and base metal projects. It owns the Prominent Hill copper-gold mine and Carrapateena copper-gold project, both located in South Australia. Co.'s operating segments are: Prominent Hill, which comprised of mining copper, gold and silver from the Prominent Hill Mine; Carrapateena, which comprised of exploration and evaluation associated with the Carrapateena project; Exploration and Development, which comprised of exploration and evaluation activities associated with the other projects and include interests and joint ventures with Minotaur and Toro Energy Ltd, and Corporate Development activities.
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Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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