Shares in OZ Minerals Limited (ASX: OZL) are up 1% to $8.94 today, after the release of a quarterly update that signals the company's ambition of turning from a local single-asset operator into a global mining firm with a focus on copper.
What was in the update?
OZ Minerals currently operates only one active mine at Prominent Hill. In the March quarter the site produced 27,000 tonnes of copper and 31,000 ounces of gold – in line with the FY2018 guidance. However, volumes mined at Prominent Hill are set to decline in FY2019. Open pit production just ended, and while underground mining continues, the local processing plant will work at full capacity until 2023 only thanks to stockpiled ore reserves.
Fortunately, OZ Minerals has accumulated a healthy cash balance and the company is ready to invest in new activities. After spending $65 million in the March quarter on developing a large copper-gold mine in Carrapateena, OZ remains with $646 million cash in hand – most of which will be used to complete the project development and commence production by the end of 2019. OZ just received the mining lease for Carrapateena, and today awarded a $660 million over six years contract to Downer EDI Limited (ASX: DOW) for development work and underground mining at the project.
The company is conducting explorations in other sites in Australia and Mexico, but is also pursuing immediate opportunities for expansion. At the end of March, OZ launched a $418 million takeover offer for Brazil-based copper miner Avanco Resources Limited (ASX: AVB).
Foolish takeaway
With production at Prominent Hill declining and a bulk of cash in hand, OZ Minerals had to choose its direction for the future. The company decided to bet heavily on one commodity, upgrading to the status of global copper mining company.
While demand for copper should remain strong over the medium-long term, given the numerous applications of the red metal – including in the electric vehicle market – I wouldn't buy OZ Minerals now. With the stock up 20% over the past year, I think short term fluctuations in copper prices could provide more attractive buying opportunities in the coming months.
