UPDATE 1-Oz Minerals tumbles on concerns over growth in copper mining

Tue Dec 10, 2013 8:55pm EST

Related Topics

* Australia's Oz Minerals hit by bleak outlook for flagship copper mine

* Analysts struggle to see where growth will come (Adds details, updates shares)

SYDNEY Dec 11 (Reuters) - Shares in Oz Minerals, Australia's third-biggest copper producer, fell by nearly a third on Wednesday following a disappointing outlook for its flagship mine, raising concerns over growth prospects.

After issuing a production update, some analysts said Oz Minerals may need to acquire new mines to replace the faster-than-expected depletion of copper and gold ores from its flagship Prominent Hill mine.

The stock tumbled as low as A$2.11 before rebounding to A$2.63, still down 15 percent on the day.

Oz Minerals confirmed earlier production guidance of 70,000-75,000 tonnes of copper and 120,000-130,000 ounces of gold for 2013 and said 2014 output would be marginally higher.

But there were concerns that there had been no increase to resources at the Prominent Hill mine and the likelihood of finding a replacement mine in the short term was low.

It was clear from the presentation that reserves and resources at Prominent Hill -- the lifeblood for ongoing operations -- have not increased despite intensive exploration efforts, said one analyst, who asked not to be named, referring to a webcast presentation hosted by Oz Managing Director Terry Burgess and Chief Financial Officer Andrew Coles.

Providing some relief, cash production costs were now expected to be at the lower end of guidance of $1.90 to $2.05 a pound of copper for 2013, according to the company.

The firm is in the early stages of developing a second mine, Carrapeteena, though that could take as long as five years and cost A$2.5 billion ($2.29 billion), based on estimates.

Oz is forecasting production for 2014 of 75,000-80,000 tonnes of copper and 130,000-140,000 ounces of gold at an improved cash cost of $1.15 to $1.25 a pound.

The higher production would assist in lowering costs, according to the company.

Oz Minerals also holds a 19 percent interest in fellow Australian copper miner Sandfire Resources, which is worth about A$182 million based on its current share price.

Sandfire Managing Director Karl Simich has said on several occasions his firm would be willing to buy Oz Mineral's stake or see a fresh investor step in, though to date the offer has been rejected by Oz Minerals.

But analysts said Oz Minerals could change its mind, given its current situation and expectations that Sandfire's stock is approaching fair value just above A$6 a share.

Sandfire was trading at A$5.95 on Wednesday. Patersons Securities has a A$6.32 target on Sandfire. ($1 = 1.0939 Australian dollars) (Reporting by James Regan; Editing by Ed Davies)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.