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OZ Minerals Limited (ASX: OZL) is a copper-focused international company based in South Australia. OZ Minerals operations include Prominent Hill, Antas, Carrapateena, Pedra Branca, West Musgrave and CentroGold. OZ Minerals has a market capitalisation of A$3.4 billion.
What has OZ Minerals announced today?
OZ Minerals today (22 June 2020) announced the company will be acquiring Cassini Resources via a scheme of arrangement, consolidating its ownership of the West Musgrave Project to 100%. Cassini will undertake an inter-conditional demerger of its Yarawindah Brook and Mount Squires assets into a new company called Caspin Resources Limited.
OZ Minerals has noted that this transaction is beneficial for both parties involved. OZ Minerals gains maximum optionality regarding development of the West Musgrave Project. This will allow OZ Minerals to determine the path forward for development of this project. Cassini shareholders receive immediate value for the West Musgrave Project and retain ongoing exposure to upside from any future sale of the West Musgrave Project, as well as Yarawindah Brook and Mount Squires projects via Caspin.
In addition to Caspin shares, Cassini shareholders will receive consideration with an implied value of A$0.16 per share comprising of A$0.15 in the form of one new OZL share for every 68.5 Cassini Resources shares held and A$0.01 per share cash capital return to be paid out of Cassini Resources existing cash balance.
What is the outlook for OZ Minerals?
According to OZ Minerals March quarterly activities report, guidance for FY20 includes copper production (tonnes) for FY20 is in the range of 83,000 – 100,000 and gold production (ounces) for FY20 is in the range of 207,000 – 234,000. This production levels are comprised from OZ Minerals Prominent Hill, Carrapateena and Carajas operations (located in Brazil). Most of the copper and gold production is coming from the Prominent Hill operation. Oz Minerals production has not been impacted by COVID-19.
The outlook for OZ Minerals is positive. This is based on the positive outlook for copper and gold. Global demand for copper could significantly increase as the world moves to renewable resources. Copper is a highly efficient conductor of electricity and heat. Renewable resources such as solar, hydro, thermal and wind energy systems use copper. In addition to power generation, Copper is also used in batteries, which may also see an increase in demand due to a boom in electric vehicle production.
The outlook for gold is also positive. Central banks and governments around the world have undertaken expansionary monetary and fiscal policies to increase economic activity in response to COVD-19. On the monetary side, this has included quantitative easing (purchasing of financial assets), which has expanded central bank’s balance sheets. This printing of money is seen to devalue the real purchasing power of existing money in circulation. Therefore, economic agents may buy additional quantities of gold to protect themselves against a devaluing of their real purchasing power. On the fiscal side, the gold price is correlated with government deficits. The relationship is when government deficits increase, so does the gold spot price.
What is the market reaction to OZ Minerals announcement today?
The market reaction to OZ Minerals is positive. OZ Mineral’s share price is up around 0.6% and is currently trading at A$10.47. This is a positive reaction as the Australian market is down today around 0.7%. OZ minerals has a forward 27x and has an annual dividend yield of 1.6%.
Disclaimer:
This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).
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ASR has no position in any of the stocks mentioned.
