The Writedowns of OZ

Another day, another mining writedown

Scott Phillips (TMFGilla)

Scott Phillips is The Motley Fool’s Chief Investment Officer in Australia. He is Advisor of The Fool’s flagship investment service, Motley Fool Share Advisor and the Portfolio Manager of Motley Fool Everlasting Income and Premier Portfolio, as well as running our most premium service, Motley Fool Platinum. He is passionate about investing, having managed his own portfolio for over 15 years. A dyed-in-the-wool Fool (in the best way), he has been a member of The Motley Fool since 1999. Scott holds a Bachelor of Commerce (Management) and a Graduate Diploma of Accounting. Before joining The Fool, Scott worked in various Sales and Finance roles in industry, which has allowed him to see the good, bad and the ugly of corporate management close-up. Giving him a great understanding of the way businesses run – and what separates the business wheat from the chaff – Scott wholeheartedly agrees with Warren Buffett when he said he was a ‘better investor because I am a businessman and a better businessman because I am an investor’. Scott left a successful career to follow his passion – helping our members achieve the best possible investment returns, and helping Australians learn to better manage their money. It’s no surprise he ended up at The Motley Fool.

Published August 14, 2013 11:47 am AEST

Gold and copper miner OZ Minerals (ASX: OZL) has today disappointed the market with a $268 million loss for its financial first half, largely on the back of a $232m writedown.

The company has given a positive outlook, with the Prominent Hill mine ready to recommence full production after repairs were conducted to fix damage caused by a slip. Cash flow is expected to be "significant" from that mine, but OZ will still need a significantly higher gold and copper price to allow it to return to profitability over the medium and long term.

OZ Minerals is just the most recent mining company to take writedowns, on the back of impairments from BHP Billiton (ASX: BHP) and Rio Tinto (ASX: RIO) earlier this year and Newcrest (ASX: NCM) and Silver Lake (ASX: SLR) more recently.

Foolish takeaway

While it's true that "the plural of anecdote isn't 'trend'", investors should rightly be concerned about the billions of dollars that were wasted by mining company directors and executives chasing overpriced acquisitions in the past.

On the evidence, investors should be very scared any time a miner gets the chequebook out.

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Motley Fool advisor Scott Phillips doesn't own shares in any company mentioned in this article.

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