OZ Minerals managed to get the ball well and truly rolling last year, with strong production numbers and a focus on cost efficiencies at Prominent Hill resulting in a 168 per cent profit jump and underlying EBITDA of $484.9 million. In 2016, OZ Minerals is using its sturdy financial position to accelerate development of the $770 million Carrapateena project, which it expects to fund from cash reserves and future profits.
By Reuben Adams
OZ Minerals managing director and chief executive Andrew Cole said that Prominent Hill, in South Australia, was proving itself to be “a strong foundation asset” which placed the company in the enviable position of being able to explore growth opportunities. “Production is at record levels and by maintaining a sharp focus on costs, we’ve managed to increase our annual profit by over 160 per cent despite the drop in commodity prices,” he said in a statement.
Prominent Hill recorded an impressive EBITDA margin of 55 per cent in 2015 while still remaining in the lowest quartile of C1 costs. “Our lean strategy is delivering results,” Mr Cole said.
This momentum has continued into 2016. OZ Minerals expected another excellent year from Prominent Hill, increasing copper production guidance to between 115,000t and 125,000t, and gold production guidance to between 125,000oz and 135,000oz.
“Being at the bottom of the cost curve is a good place to be going into 2016 and we intend to take full advantage of our relative strength in the current market,” Mr Cole said.
In late February the company confirmed it would accelerate planning for the Carrapateena copper gold project, also in South Australia, which it acquired in 2011 for $250 million. A three year drilling program had increased the resource base from 203 million tonnes grading 1.3 per cent copper and 0.6 grams per tonne gold to 800mt grading 0.8 per cent copper and 0.4g/t gold.
In October last year, OZ Minerals discovered a high grade resource of 61mt at 2.4 per cent copper and 0.9g/t gold within the larger resource – this has since been the company’s focus. A comprehensive four month technical review of nine development options concluded that a smaller 2.8mtpa, high-grade sublevel caving option would generate strong returns and could be funded by cash on hand and predicted Prominent Hill cash flow.
“Whatever lens you look through, whether it is value, rate of return, grade, cost, mine life, production profile, jobs or scalability, we believe Carrapateena will be an outstanding project,” Mr Cole said.
“We have identified a stand-out option that we expect will bring hundreds of jobs to the region and make a lasting difference to the local community.”
By starting development when the commodity cycle is weak, OZ Minerals expected lower costs, and lessened schedule and capital overrun risks. The project could be a boost to a flagging state economy, bringing employment and business opportunities when ramp up activity starts in March. About 400 new jobs would be created in the construction stage then a similar number of operational jobs from 2019 onwards, the company stated.
The next step at Carrapateena was the commencement of a pre-feasibility study, which would optimise the cut-off grade and life of mine haulage strategy to determine the production profile “with more certainty”. Following this, mine, process plant and infrastructure engineering would allow sufficient detail to progress to full feasibility.
“Having narrowed down the options, we are now going to complete a PFS for the new base case and we then expect to commit to purchasing long lead items and commencing the development of the decline,” Mr Cole said.
With the copper market forecast to move into supply deficit by the end of the decade and new projects required to meet growing demand, OZ Minerals is counting on Carrapateena coming online at an ideal time to take advantage of improving copper prices.
“OZ Minerals is a highly disciplined, low cost producer that operates in the bottom quartile of the cost curve and Carrapateena will be a perfect fit for our low cost portfolio, resilient to market cycles,” Mr Cole said.
“Once in full production, Carrapateena will help return South Australia to the copper mining powerhouse it once was and should make a timely contribution to the South Australian Copper Strategy,” Mr Cole said.
Outlook
The current low copper price has not changed OZ Minerals’ view that underlying long term fundamentals remain very strong; forecasts expect demand to exceed production from operating mines and firm probable projects from the end of the decade.
“For OZ Minerals, 2015 was a year of transition where our strategy helped chart a clear course for significant operational and financial success,” Mr Cole said.
Mr Cole said OZ Minerals had made a strong start to 2016, and that momentum could continue to build.
“We still have lots to do, but I think we have a great asset in Prominent Hill that puts us in the enviable position to explore internal and external growth opportunities on the path to delivering shareholder value.”
