Materials

Does Oz Minerals now look oversold?

Mon 31 Jan 22, 12:56pm (AEST)
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Key Points

  • Oz Minerals has been trading lower since last week's quarterly update
  • Citi upgrades Oz Minerals to Buy based on positive copper outlook
  • Lower guidance weighs in other brokers' forecasts

Despite some impressive results within Oz Minerals’ (ASX: OZL) fourth quarter result, released last Thursday, the copper-focussed miner’s share price continued in the downward trend (-11%) that following the announcement, with the share price -3.24% lower an hour after the open.

What seems to have spooked the market was the company’s weaker than expected guidance, plus a higher medium-term cost outlook for Carrapateena.

It’s understood market conditions prompted the company to raise unit cost forecasts for the mine by 40%, while gold production is forecast to fall by between -3% and -12%.

The company also noted that the medium-term outlook for Carrapateena would be slightly lower (68,000 tonnes) than the previous guidance of 70,000 tonnes a year.

Growth options & low-risk asset locations

However, based on Citi’s positive outlook on copper, the broker has lifted its rating on the stock to a Buy from Neutral, and after recent share price weakness raises its target to $29.10 from $27.00.

Much of the broker’s outlook is based on the strong growth outlook for copper – up 24% in the last 12 months – especially given demand out of China and a growing addressable market.

While Citi’s concedes Oz Minerals is not a free cash flow yield stock, the broker believes the company’s growth options and low-risk asset locations make it a standout on the global stage.

Citi also notes that the company’s Buy rating requires investors to support a multi-year decarbonisation-driven bull thesis of US$4.0/lb long term.

What other brokers think

  • While Oz Minerals achieved its 2021 guidance, UBS believes the company finished the year on a disappointing note with copper production a -15% miss on forecast and all in sustaining costs 27% up on expectations. The Neutral rating is retained, and the target price decreased to $25.20 from $26.94. (31/1/22).

  • Following 4Q results, Credit Suisse reduces its target price for OZ Minerals to $21 from $22.80. The Underperform rating is maintained due to minimal cash free flows and risks of capex increases across all growth projects. (28/01/22).

  • Morgan Stanley reduces its earnings per share (EPS) forecast for FY22 -31.5% given guidance and lowers the target price to $26.10 from $27.30. Equal-weight rating is retained. (28/01/22).

  • Lower guidance and the removal of CentroGold from valuation has driven material cuts to Macquarie’s earnings forecasts. The broker downgrade to Neutral from Outperform, and the target falls to $26 from $33. (28/01/22).

Consensus on Oz Minerals is Hold.

Based on Morningstar’s fair value of $23.81 (04/01/22) the stock looks overvalued.

Written By

Mark Story

Editor

Mark is an investigative financial journalist and editor who started his career working for Marathon Oil in London. He has a degree in politics/economics and a diploma in journalism. Mark has worked on 70-plus newspapers and financial publications across Australia, NZ, the US, and Asia including: The Australian Financial Review, Money Magazine, Australian Property Investor and Finance Asia. Mark is passionate about improving the financial literacy of all Australians through the highest quality content. Email Mark at [email protected].

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