OXR - Oxiana Limited

[dubiousinfo]

Clowboy is correct, I was referring to the financial year 1/7/06 to 30/6/07.

 

[crayfish]

The markets lack of support for the profits being reported by the miners is disappointing.

Agreed. The latest figures are sensational.

But here's some positive news:

Oxiana in vogue for brokers

Michael Quinn
Tuesday, 29 August 2006

CITIGROUP and Goldman Sachs JBWere remain fans of the Oxiana story, while Credit Suisse has come along for the ride albeit with caveats aplenty.

At a $2.85 share price following the strong half year results last week, Credit Suisse has increased its rating for Oxiana from Neutral to Outperform, citing the stock's relative underperformance since early this month against the S&P/ASX 200.

Credit Suisse also said it thought "earnings strength and reasonable valuation" are sufficient to justify the increased rating, but aside from these comments and one or two others, there was no overly positive tone to the broker's report.

It said Oxiana was "for true believers in resources", the corollary being that "the risk of sub-economic returns over the long term on capex deployed now, with a view to a return from 2008-on, is elevated".

It was also cautious on the three key drivers for Oxiana – copper and zinc prices, operational performance, organic growth delivery – commenting that metal price momentum appears to have plateaued; operational performance has "shown slippage from a cost and production perspective", and organic growth delivery has been "slower than promised and at materially higher costs than forecast".

GSJBW's take was far more positive, headlining its analyst note with "Delivery on Promises" and tagging the stock a short-term Outperform and a long-term Buy.

GSJBW said a key feature of the half year result – comprising an above-consensus $263.3 million net profit – was the cash generating ability of Oxiana and its consequent "ability to internally fund a significant portion of planned developments over the next five years".

Citigroup sanguinely headlined its note "'Making hay while the sun shines' now upgraded to 'printing cash'", and said the half-year result was "an absolute cracker".

It had an unchanged "buy" recommendation on Oxiana, with a slightly increased target price of $3.97.

(from MiningNews.net)

 

[TheFlash]

Whats happening with OXR? I would've thought that the last reporting figures would have truned this stock upwards but it's remaining sluggish. Also, today was dissapointing, considering BHP got somewhat of a lift from copper prices and the US market I would have thought that OXR may have taged along as well.

Any thoughts?

 

[YELNATS]

As a holder of OXR I'm wondering the same thing. But I remain patient and a true OXR believer. Regards YN

 

[michael_selway]

Whats happening with OXR? I would've thought that the last reporting figures would have truned this stock upwards but it's remaining sluggish. Also, today was dissapointing, considering BHP got somewhat of a lift from copper prices and the US market I would have thought that OXR may have taged along as well.

Any thoughts?

Basically hard to see Copper prices goign up from here sustainably, as LME supplies increase

Earnings and Dividends Forecast (cents per share)
2005 2006 2007 2008
EPS 5.6 34.5 26.9 24.2
DPS 1.0 2.0 2.0 2.5

So Forward Terminal PE of 10 = $2.5 about how much they are worth currently

thx

MS

 

[nizar]

Basically hard to see Copper prices goign up from here sustainably, as LME supplies increase

Earnings and Dividends Forecast (cents per share)
2005 2006 2007 2008
EPS 5.6 34.5 26.9 24.2
DPS 1.0 2.0 2.0 2.5

So Forward Terminal PE of 10 = $2.5 about how much they are worth currently

thx

MS

bro can u 4get about forward terminal pe,
prominent hill isnt even considered in those forecasts and that will double copper production and almost double gold production and who knows how much gold will be worth in those days
zinc is just as important to OXR than copper is, its amazing how people still think its a copper/gold play

 

[haemitite]

bro can u 4get about forward terminal pe,
prominent hill isnt even considered in those forecasts and that will double copper production and almost double gold production and who knows how much gold will be worth in those days
zinc is just as important to OXR than copper is, its amazing how people still think its a copper/gold play

Well, I'm wondering if its time to take a nice profit on this one

The capex blowout has Prominent Hill looking very marginal. And high grading of Sepon is a concern.

 

[dubiousinfo]

Well, I'm wondering if its time to take a nice profit on this one

The capex blowout has Prominent Hill looking very marginal. And high grading of Sepon is a concern.

The capex for Prominent Hill has increased as all costs have for miners, however, none of the figures I have seen put out to date suggest it will be marginal.

What figures are you using?

 

[rederob]

The capex for Prominent Hill has increased as all costs have for miners, however, none of the figures I have seen put out to date suggest it will be marginal.

What figures are you using?

Marginal is good!
Prominent Hill to produce at a copper cash cost under 80cents/lb (after silver/gold credits) and churn out over 200million pounds of copper per year for the first 4 years, then about 150milion pounds for the next 6 years.
Lets assume copper prices average about $3/lb (presently $3.40) and cash costs average $1/lb to give us a neat margin.
That gives Prominent Hill an output of 1.5b pounds of copper at $2 margin for a return of $3b.
That's the kind of margin I can live with.

By the way, Prominent Hill has further exploration upside, so the baseline numbers could change for the better and mine life could extend well beyond 10 years.

 

[haemitite]

Marginal is good!
Prominent Hill to produce at a copper cash cost under 80cents/lb (after silver/gold credits) and churn out over 200million pounds of copper per year for the first 4 years, then about 150milion pounds for the next 6 years.
Lets assume copper prices average about $3/lb (presently $3.40) and cash costs average $1/lb to give us a neat margin.
That gives Prominent Hill an output of 1.5b pounds of copper at $2 margin for a return of $3b.
That's the kind of margin I can live with.

By the way, Prominent Hill has further exploration upside, so the baseline numbers could change for the better and mine life could extend well beyond 10 years.

OXR are building in a hot market and then hoping like hell the Cu price stays up. $3/lb in the long term ... hmmmm

Citigroup now have an NPV for PH of less than $100M. As the capex is a touch under A$800M that return is looking very thin, especially as capex will still have a upwards skew.

Sure there should be some resource upside, but remember that the PH grade and mine life weren't good enough to keep BHP interested

PH sounds good in the media blurbs but it isn't the crash hot project some believe.

I've held onto OXR for their zinc exposure, thinking about pulling the pin on this one now but I'm in the fortunate(unfortunate?) position of not having a capital loss to use against it.

 

[nizar]

I too, have my doubts about PH and the earnings outlook for OXR, as every1 probably knows, in the past i was very bullish on this stock

They will spend $775million on CapEx for PH

I tried to work out an earnings estimate for CY2009 (the first full year of PH production and this is what i came up with:

Oxiana's EBITDA for FY2008:

GG: 140,000t zinc at costs of 70c/lb, zinc spot price of 1.20/lb
EBITDA = 140,000*2.2*1000*(1.20-0.70) = 154million
12,000t copper at costs of $1.20/lb, spot price of 2.50/lb
EBITDA = 12,000*2.2*1000*(2.50-1.20) = 34million

Sepon: 60,000t copper at costs of $1.20/lb, spot price of 2.50/lb
EBITDA = 60,000*2.2*1000*(2.50-1.20) = 171million
170,000oz gold at costs of $500/oz, spot price of $1,000/oz
EBITDA = 170,000*(1000-500) = 85million

PH: 85,000t copper at costs of $1.20/lb, spot price of 2.50/lb
EBITDA = 85,000*2.2*1000*(2.50-1.20) = 243million
115,000oz gold at costs of $500/oz, spot price of $1,000/oz
EBITDA = 115,000*(1000-500) = 58million

Therefore, total EBITDA = 770million

Considering the half yearly financials released last week, they had EBITDA of 400million for the half year, with Hegarty commenting the 2nd half will probably be similar.

So, we must ask the question, even with PH, since costs will inevitable rise, and metals especially copper, will be in oversupply by next year and will fall, this all means that Oxiana's earnings outlook, the CY2009 NPAT to be the same as CY2006.... there doesnt seem to be much upside left in the sp to grow, because fundamentally, if earnings dont go up, sp wont be going anywhere....

Of course the black horse here is toro, with OXR's 25% stake, it has exposure to the uranium debate, but toro's results were such a joke i dont even know if u can call a holding in toro a positive..~! LOL\

The above is only my own guesstimates, but i think copper will be around 2.50, and it has already peaked at 4.00/lb in May... stocks starting to rise now... zinc though hasnt peaked yet, but probably will in the next 6 or so months at perhaps $2+/lb, and then fall back to 1.20 IMO in 2 years from now... gold, not that could be a suprise, but i dont think it going to 1,000/oz without having higher oil prices and therefore costs, and consequently, thats why i think costs will be 30-40% higher than they are today...

So rising costs and falling metal prices; sadly, it doesnt paint such a rosy picture for the outlook of the (once?) mighty Ox...

Though any production increase, exploration success, takeover, merger, could pump up the sp...

Rederob, please tell me im wrong or that im missing something...

 

[rederob]

OXR are building in a hot market and then hoping like hell the Cu price stays up. $3/lb in the long term ... hmmmm

Citigroup now have an NPV for PH of less than $100M. As the capex is a touch under A$800M that return is looking very thin, especially as capex will still have a upwards skew.

Sure there should be some resource upside, but remember that the PH grade and mine life weren't good enough to keep BHP interested

PH sounds good in the media blurbs but it isn't the crash hot project some believe.

I've held onto OXR for their zinc exposure, thinking about pulling the pin on this one now but I'm in the fortunate(unfortunate?) position of not having a capital loss to use against it.

If you believe Citibank then you might as well sell OXR now, as on those numbers it is not worth it.
BHP's interest or otherwise is now irrelevant.
Prominent hill is second only to Olympic Dam in terms of global copper/gold orebodies ranked by total equivalent copper grade, and this list has Grasberg and Escondida 4th and 5th respectively.
There are only 5 major new (world class) copper mines hitting production in the next 2 years, 2 in 2009, and quite afew thereafter. So I don't think oversupply is going to be a concern for a while.
During August global copper inventories should have rebuilt significantly: They did not.
I expect market tightness to increase markedly over the next 3-6 months and will not be surprised to see copper hit 500cents/lb before its next bout of consolidation.
I also believe zinc prices have a long way to go, so don't consider OXR as a "sell" until the tide turns.

nizar
We are trying to guesstimate copper prices too far ahead of present market sentiment, so my simple use of numbers - in the earlier post - was on a lower copper price and a higher prodiction cost. Halve the copper price again and one still gets a decent return.
An aspect that pundits are reluctant to consider is that markets can actually tighten in the next few years: Everyone keeps saying we will run into "oversupply". Well, they forecast that in 2005 and were wrong, and their forecast thus far is still not on the money in 2006. Could they also be wrong in 2007?
I think there is a chance, maybe not 50:50, but not an unreasonable chance.

 

[haemitite]

If you believe Citibank then you might as well sell OXR now, as on those numbers it is not worth it.
BHP's interest or otherwise is now irrelevant.
Prominent hill is second only to Olympic Dam in terms of global copper/gold orebodies ranked by total equivalent copper grade, and this list has Grasberg and Escondida 4th and 5th respectively.

Thats exactly the point isn't it - on consensus copper price forecasts PH is marginal. It needs your $3/lb to match the hype

The total equivalent copper you quote from the OXR website shows it to be a decent grade but hardly miles ahead of Escondida, Graser etc.

But BHP interest was very relevant as it didn't meet their criteria of a first tier deposit - PH is small, less than 100Mt.

Plus this chart doesn't gell that well with other reports - Oyu Tolgoi for example claims measured and indicated resources of 1500Mt at > 1.50% Cu equiv (including the first major underground mining areaat 580Mt and 2.15% Cu equiv). The OXR chart puts them at around 1.20%Cu equiv so god knows how this info has been extracted. Funnily enogh, Oyo Tolgoi claims to be the worlds next major copper ang gold mine

PH is not a growth driver for OXR.

 

[nizar]

But BHP interest was very relevant as it didn't meet their criteria of a first tier deposit - PH is small, less than 100Mt.

BHP have more than they could ever ask for at Olympic Dam

Just wait until september 19th, the new resource estimate for Olympic Dam will be in their annual report.
What do u think would be NPV of 1million tonnes of Cu, and 40,000tonnes of U production annually from 2010 and a mine life of 100 years?
Probably not far from 100billion, their current market cap

With a monster like that, no wonder they werent interested in PH

I generally agree with what you are saying though, PH is not the gem we all thought it was. Copper prices its hard to believe will still be above $3 by 2nd half of 2008.... even in super cycles u have peaks and troughs...

 

[haemitite]

BHP have more than they could ever ask for at Olympic Dam

BHP passed up on PH well before they took over WMCR.

 

[rederob]

I can only suggest that haemitite gets to understand the difference between contained metal and orebody.
Then he needs to work out the extent that byproduct credits affect the profitability of the orebody, plus the impact of low arsenic content. For this latter point I sugest he looks at how badly the massive Telfer project has done due to high arsenic grades.
He needs to put the history of Prominent Hill behind him and look only at the future profitability of the project.

 

[haemitite]

He needs to put the history of Prominent Hill behind him and look only at the future profitability of the project.

hmmm, back to the start looking at some not so historical points.

PH is a decent grade but is a relatively small mineable reserve - tick
The capex has blown out - tick
Valuation models have it just a touch above NPV neutrality - tick
PH still faces project execution risk - tick

I hold just a touch under 50K of OXR stock so I'm hardly an uninterested observer. But I'm also open minded enough to put forward that the PH emperor doesn't have any clothes.

 

[snapper_man]

The fact that BHP passed over PH is totally irrelevant. Oxiana picked up Sepon from Rio, wise decision I think so. Golden Grove from Newmont, umm not a bad one there either I would think. The comparison with BHP is interesting. BHP is a great company and I believe are underpriced. I dont know where the 100 year mine life comes in though, where do you get your figures from? OXIana is kicking **** at the moment and can fund PH from cash flows from this year alone. Basically doubling production from organic growth, BHP cannot do this.
Do not be fooled by the current PH resource figures. These are the 'go ahead' figures and the resource will be upgraded substantially in the coming months.
Any other projects I hear you ask? A couple in there own back yards. Sepon Primary ore gold resource which is deeper than the sulphide resource. Only a lazy 2 million odd ounces. Feasability will be out in the coming months. Also Oxiana are continually finding more copper at sepon are infact currently undertaking a feasability study to double production based on an expanded resource.

 

[rederob]

PH is a decent grade but is a relatively small mineable reserve - tick
The capex has blown out - tick
Valuation models have it just a touch above NPV neutrality - tick
PH still faces project execution risk - tick

If you hold that quantity of OXR then you should know better.
Check your facts on PH in terms of "mineable reserve" and tell me/us how many larger projects are likely to come on stream before end of 2008.
Is there something about "world class" that you don't understand?
The capex of every mining project in the world has recently blown out - so what's new? At least OXR has recently revised its numbers so there is a reasonable chance their project will reflect actual costs as distinct from projects that are not as advanced - check out Oyu Tolgoi's most recent numbers and compare to PH. Bottom line is that OXR has given the project the go-ahead.
Valuation models continue to be conservatively based and do not reflect the present price of copper. You would be wise to try some figures of your own rather than rely on other's. Even ABARE, which hasn't got close to picking the forward price of metals, has copper prices over $2/lb in 2008.
As for the "execution risk", you have to be kidding!!! Mining in South Australia is about as safe and friendly as it is possible to get.
But if you are not, would you like to explain what risks they are.

 

[haemitite]

If you hold that quantity of OXR then you should know better.
Check your facts on PH in terms of "mineable reserve" and tell me/us how many larger projects are likely to come on stream before end of 2008.
Is there something about "world class" that you don't understand?
The capex of every mining project in the world has recently blown out - so what's new? At least OXR has recently revised its numbers so there is a reasonable chance their project will reflect actual costs as distinct from projects that are not as advanced - check out Oyu Tolgoi's most recent numbers and compare to PH. Bottom line is that OXR has given the project the go-ahead.
Valuation models continue to be conservatively based and do not reflect the present price of copper. You would be wise to try some figures of your own rather than rely on other's. Even ABARE, which hasn't got close to picking the forward price of metals, has copper prices over $2/lb in 2008.
As for the "execution risk", you have to be kidding!!! Mining in South Australia is about as safe and friendly as it is possible to get.
But if you are not, would you like to explain what risks they are.

• BHPB is bringing on 380,000 tonnes of Cu from Spence and Escondida Norte this year. Again, 380,000 tonnes

• Ivanhoe own Oyu Tolgoi and not much else. Their market cap is >US$2000B. PH is a 10 year mine, 46% overbudget and close to A$50M NPV. I consider one of those projects world class

• you have confused project risk with sovereign risk

• Valuation models do reflect the expectations around the current price - it will go down.

• every mining project in the world has blown out ???