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OZL

OZ Minerals Ltd HY20 Result – Strong HY20 Result With Positive Outlook For Gold And Copper Prices

Timothy Anderson

Timothy Anderson is a contributor with the Australian Stock Report and is currently in his final year of studying a Bachelor of Applied Economics and a Bachelor of International Relations and Politics at the University of Canberra. Tim has a genuine passion for economics, specifically in macroeconomic analysis including how certain macroeconomic policies and indicators affect financial markets and the economy, as well as how these factors affect personal investment strategies. Tim currently holds RG146 Tier 1 Generic Knowledge qualifications.

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$4.5 billion.

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What are the key features of the FY20 result for OZ Minerals?

OZ Minerals announced a strong HY20 result. OZ Minerals reported net profit after tax of $80 million, up 82% from HY19. Net revenue for HY20 of $575.7 million, up 37% from HY19. Earnings per share for HY20 is 24.6 cents, up 80% from FY19. OZ Minerals will pay an interim dividend of 8 cents per share (fully franked).

The main driver of this result was higher average gold prices and gold production. Gold volumes this HY20 was 53,800 ounces higher and the A$ gold price was 36% higher through the half year. This higher level of production was attributed to the inclusion of Carrapateena, which commenced as an operating asset for the first time during the half-year.

Regarding OZ Minerals balance sheet, the company ended the half-year with a cash balance of $114.5 million and gross debt balance of $100.0 million.

What is the outlook for OZ Minerals?

The outlook for OZ Minerals is positive. OZ Mineral’s provided guidance for FY20. Copper production for FY20 is expected to be in the range of 88,000–105,000 tonnes and gold production for FY20 is expected to be in the range of 227,000–249,000 ounces. All-in sustaining costs for FY20 is in the range of US$ 70 – 85 c/lb.

The main reason why the outlook is positive for OZ Minerals is due to the positive outlook for gold and copper prices. 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.

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.

What is the market reaction to the FY20 result?

The market reaction to OZ Minerals HY20 result is positive. OZ Minerals share price is up around 1.5% and is currently trading at A$14.28 (19 August 2020). OZ Minerals is trading at a forward P/E ratio in the high-twenties and has an annual dividend yield of around 1.4%.

 


 

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).
This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law, we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.
ASR has no position in any of the stocks mentioned.

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