OZ Minerals NPAT Sinks By 65 Per Cent As Trade Tussle Knocks Out The Global Demand

The United States and China trade tussle took down the earnings and profit of the ASX-listed copper-focused OZ Minerals Limited (ASX: OZL).

OZ Minerals announced its 2019 half-year financial results on 28 August 2019, and the company reported the revenue for the half-year ended 30 June 2019 at $419.2 million, down by 21 per cent as compared to the previous corresponding period (or pcp).

The company posted a profit after tax of $43.9 million, down by 65.6 per cent as compared to the previous corresponding period.

The profit of the company took a hit as the customers preferred the delivery of concentrate into the second half of 2019. Despite robust fundamentals, copper prices have taken a jab in the international market over the gloomy global outlook.

However, the company mentioned that there is now an improvement in purchasing sentiment, and the customers are bringing shipments forward to secure supplies.

OZ Minerals mentioned that the company classified the transaction cost of the Avanco Resources acquisition in 2018 as non-underlying, which in turn, took the NPAT to $133.7 million. During the first half of the year 2019, OZL incurred high exploration and evaluation expenditure.

Trade Spat and Copper Deferment:

During the first half of the year 2019, the intensified trade war raised pessimism in the global market, which in turn, took the industrial metal prices down.

Apart from that, higher scrap importation, maintenance along with new smelter start-up issues and tighter credit policies for smelters drove down the base metals consumers sentiment during the first half, which further led towards the deferment of the copper supplies by the end consumers.

Due to such deferments, OZ Minerals lost a significant sales volume, which further in a cascade slashed the profit margins of the company.

The U.S-China trade tussle took the copper prices significantly down in the international market during the second quarter of the year 2019, which took down the average realised price of the company.

OZL lost about 11,400 tonnes of copper sale volumes with an average 3 per cent decrease in the realised price for the first half of the year 2019 as compared to the pcp. The company lost circa 4,300 ounces of gold sale volumes with a little to no change in the average realised price.

Prospects Delivery and Progress:

The Flagship Prominent Hill Project:

The copper-gold-silver mine in South Australia delivered consistent and reliable results during the first half as the copper and gold production from the prospect remains strong with low cash cost. The copper production from the prospect stood at 52,534 tonnes, while the gold production stood at 58,757 ounces for the first half of the year 2019.

The all-in sustaining cost for the period stood at US$99.3c/lb, while the cash costs for the period stood at US$57.9c/lb.

OZ Minerals completed a primary gold ore processing trail at the Prominent Hill prospect during the first half of the year 2019, which further indicated towards an opportunity to enhance recoveries and throughput rates when primary gold graded material is processed.

Carrapateena Prospect:

OZ Minerals’ Carrapateena copper-gold prospect is on schedule for the first concentrate production in the fourth quarter for the year 2019 post significant construction activity.

Post the commencement, the prospect of the company would ramp up to a steady-state production of 4.25 million tonnes per annum in approximately 18 months. During the first half of the year 2019, OZL extracted and stocked over 100,000 tonnes of ore and witnessed an underground development of over 15,000 metres at a vertical depth of 630 metres at the prospect.

The company completed 90 per cent infrastructure related to the processing plant and non-process assets.

OZ Minerals also progressed through its other prospects such as Gurupi, Musgrave, and Carajás.

Dividend:

OZ Minerals declared the distribution of a fully franked dividend of 8cps (cents per share), which would mark allocation of $25.9 million. The company previously paid a fully franked dividend of 15cps in March 2019 for $48.4 million, which takes the total dividend for 2019 $0.23 a share, slightly up from the 2018 total dividend of $0.22 a share.

Trade War and the Australian Players:

The trade tiff between the United States and China has just not only hampered OZ Minerals, post the re-escalation of the trade war many customers of other Australian miners have witnessed a deferment in the shipments, and the trade war has affected many more ASX-listed miners.

Not only OZ Minerals, but recently many other miners have also witnessed a deferment in the shipment over the impact of the U.S-China trade spat.

In the recent events, ASX-listed lithium miners such as Pilbara Minerals (ASX: PLS), Mineral Resources (ASX: MIN), Galaxy Resources (ASX: GXY) have witnessed the negative impact of the trade war, and these miners have either seen a delay in shipment or a production halt over weak demand in the international market.

Also Read: Lithium Demand Plays Spoilsport; Alita, Galaxy and Pilbara Limits Production

OZ Minerals Cash Status:

The operating cash flow for the half-year ended 30 June 2019 stood at $101.2 million, down by $53.3 million as compared to the pcp.

The customer receipts for the period sank by $108.2 million, while the payment of higher exploration and evaluation, which reflects the ongoing investment by the company for the growth pipeline inched up by $24.7 million.

The higher cash outflow from exploration and evaluation expenditure activities coupled with lower cash inflows from the customers amid timing of concentrate sales reduced the net cash to $185.5 million for the half-year ended 30 June 2019.

The opening cash balance for 2019 in January was $505.1 million; however, the company witnessed higher investment activities during the half-year ended 30 June 2019. The investing activities by the company during the period witnessed a cash outflow of $354.7 million.

OZL closed the day’s trade on ASX at A$9.430 up by 5.72% as compared to its previous closing price. (as on 28 August 2019)

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