Overview: OZ Minerals Limited (“OZ Minerals”, “the Company”) is an Australian resources company, primarily focused on gold and copper mining. OZ Minerals owns and operates the Prominent Hill copper-gold mine and the Carrapateena exploration project in South Australia. OZ Minerals was formed through a merger of Oxiana Limited and Zinifex in 2008.
Catalysts: OZ Minerals is generating free operating cash flow which has consistently risen since 2013. The Company announced a $60m share buyback in February 2016 for capital management purposes. OZ Minerals targets extension of the Prominent Hill mine beyond 2026 and is moving towards completion of the PFS for Carrapateena in Q4 2016. The Company has a strong balance sheet with ~$550m in cash and no debt.
Hurdles: Even though OZ Minerals has a positive track record of successful mine operations, there is no guarantee that the Carrapatena exploration project can be transformed into a financially viable mining site. OZ Minerals operations are capital intensive and any further deterioration in gold and copper prices could impair the Company’s financial performance.
Investment View: OZ Minerals offers profitable exposure to the gold and copper mining industry. We are attracted to the Company’s share buyback program, strong balance sheet, and cash flow generation. Its capital intensive operations and reliance on the volatile gold price are principal risks. OZ Minerals’ stock is trading ~25% below its Net Tangible Assets (“NTA”) and the company is well-positioned to benefit from any cyclical recovery in the gold price. We initiate coverage with a buy recommendation.
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