Company Overview: OZ Minerals Limited (ASX: OZL) operates and invests in long-life, low-cost assets in key jurisdictions to produce gold and copper. OZ Minerals Limited undertakes mining and development activities for the extraction of gold, copper, silver, and sale of concentrates. It runs four segments namely Carrapateena, Carajas, Prominent Hill, and exploration & development on other projects.

OZL Details

• The company reported ~125,486 tonnes of contained copper (Cu) production for FY21 thereby meeting the production guidance provided between ~120K- 145K tonnes.
• The FY21 gold (Au) production stood at ~237,263 ounces (oz) in line with the guidance range of ~225K - ~243K ounces.
• The EBITDA increased to ~$1,162 million, up by 92% Y-o-Y in FY21 with an operating margin of 55% delivered due to improved operational performance.

The company has ploughed back ~$630 million out of FY21 net operating cashflows generated to realise its growth strategy. It is investing funds in value accretive projects which includes

• Project Expansions at the Carrapateena Block Cave and the Prominent Hill Wira Shaft mine,
• Advancement of project study at the West Musgrave for FID (final investment decision) to be taken in 2HFY22
• Progress on the Decarbonisation Roadmap to reduce emissions
• Development of the Carajás Hub strategy in Brazil to produce ore

Consistent Dividend Distribution Approach:

The company declared a fully franked final dividend of ~18 cents per share (cps) for 2HFY21 and ~34 cps for FY21, up by 9% Y-o-Y and in line with its sustainable dividend approach.

5-Year Growth Trend of NPAT & Net Operating Cashflows, Highlights; (Analysis by Kalkine Group)

Key Metrics: OZL witnessed a 5-year CAGR of ~23.10% in NPAT and ~29.72% in the net cash flows from operations from FY17-FY21. Its net revenue grew from ~$1,023 million in FY17 to ~$2,095.8 million in FY21 at a 5-year CAGR of ~19.6%.

Top 10 Shareholders:

The top 10 shareholders together form ~19.66% of the total shareholding. First Sentier Investors Global Resources and Colonial First State Investments Limited hold a maximum stake in the company at ~3.57% and ~2.50%, respectively.

Shareholders’ chart here

Source: Analysis by Kalkine Group 

Key Risks:

• Volatile Prices: OZL faces the risk of volatility in the price of gold and copper which is influenced by a slowdown in demand, supply, production levels, and macro events such as Russia- the Ukraine war.
• COVID-19 Disruptions: The supply chain disruptions, rise in sea freight rates, labour movement restrictions continue to pose risks to the business growth.

FY22 Production Outlook:

• OZL estimates ~127,000 - ~149,000 tonnes of copper production and ~208,000 - ~230,000 ounces of gold output in FY22. It estimates to incur ~$165 - $185 million capex on mine development during FY22.
• The company is planning to hold its AGM (Annual General Meeting) on 8 April 2022 at 10.00 AM at its head office in South Australia.

Valuation Methodology: EV/Sales Value Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of OZL gave a negative return of ~10.86% in the past three months and a positive return of ~0.821% in the past six months. The stock is currently trading slightly lower to its 52-weeks’ average price level band of $20.050 - $29.750. The stock has been valued using the EV/Sales multiple-based-illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount than its peers’ mean EV/Sales multiple, considering the COVID-19 uncertainty, emerging risks of cost inflation, labour shortage, and increased sea freight costs. For this purpose of valuation, a few peers like IGO Ltd (ASX: IGO), Evolution Mining Ltd (ASX: EVN), Newcrest Mining Ltd (ASX: NCM), and others have been considered. Considering the current trading levels, robust financial results in FY21, improved liquidity position, investment in growth accretive projects, focus on capital discipline, an indicative upside in valuation, associated key business risks including the recent Russia-Ukraine war scenario, and a partial lockdown imposed in a few commercial hubs in China due to COVID-19 influx of cases causing growth concerns, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $24.550, up by ~0.987%, as of 16 March 2022. Markets are currently trading in a highly volatile zone due to certain macro-economic issues and prevailing geopolitical tensions. Therefore, it is prudent to follow a cautious approach while investing.

OZL Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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