Mining Morsels: OZL, S32

Company News

by Glenn Dyer

Updates Monday from major miners OZ Minerals and South32 told a similar story – the fourth quarter saw disruptions caused by Covid, the Russian invasion of Ukraine, rising inflation, supply chain problems and higher input costs – especially the latter.

…………

Oz Minerals (ASX: OZL) had already downgraded its copper output forecast and delivered on that lowered guidance while gold output in the three months fell behind the same quarter of 2021.

Judging by a comment in Monday’s report, mining costs will be an increasing focus for OZ Minerals, especially for a couple of prospects heading towards feasibility decisions

The company said costs rose in the quarter because of a combination of factors, especially inflationary price rises for some key inputs and the impact of staff shortages due to Covid (which saw output reduced).

“Group unit costs were increased in our June guidance update, impacted by lower production at the Australian assets and industry inflation of circa 8% across all assets,” OZ said.

But the after the first half weakness at its two mines Prominent Hill and Carapateena, OZ sees an improvement in the December half (if the weather the pressures from Covid easing do not continue to exert negative pressures on operations).

“A stronger operational performance is expected over the second half of the year at our Australian assets with remediation plans being actioned,” CEO Andrew Coles said in Monday’s statement.

However, the company, like the rest of business, is facing new Covid variants and increasing infection rates across the community. These continue to pose a risk to operational productivity and guidance, OZ said.

“Whilst the copper price has weakened recently, the medium to long-term outlook remains strong for minerals linked to the renewable energy industry, like copper and nickel.

“Our focus for 2022 remains on safely delivering our operational targets, advancing our current growth projects and adding new growth options to the portfolio while we continue to strengthen our unique company culture, placing us in a positive position against forecast demand trends,” Cole said.

Copper production for the quarter was 27,243 tonnes, down from 32,681 tonnes for the June 2021 quarter and lower than the 30,322 tonnes for the first three months of this year.

Gold production totalled 51,184 ounces, down more than 12% from the 57,575 ounces a year ago and just over 5% down from the 48,773 ounces in the first three months of 2022.

OZ said underground operations at its Prominent Hill mine in South Australia delivered 893,000 tonnes of ore at 1.19% copper. “Underground ore mined and development continued to be impacted by Covid-19 operator absences with unplanned absenteeism of circa 8% for the quarter.”

“Positive progress on the production recovery plan resulted in underground production being 11% higher than the previous quarter with improvements to equipment availability achieved across the primary fleet through concerted focus on planned maintenance compliance.

“Interruptions to mining activities on the lower levels due to high ambient temperatures were reduced in 2Q as a result of new ventilation infrastructure established and the seasonal reduction in surface temperatures and humidity.”
On its Carrapateena mine, also in South Australia OZ said “Ore mined from underground operations was 927,000 tons of ore at 1.42% copper with production of 11,316 tons of copper and 16,123 [troy] ounces of gold for the quarter.

“Total material movement was adversely impacted during the quarter by two material handling system belt splice delamination events, equipment availability and workforce absenteeism.”

On other operations OZ said that the “ramp up of underground ore movement at Pedra Branca in Brazil was completed during the quarter ahead of schedule, and the Carajás East is on track to produce at the higher end of its unchanged guided range providing further confidence around our optionality to progress further low-cost expansion options in Brazil.”

And OZ is moving towards decisions on a couple of new projects.

“The West Musgrave study progressed well during the quarter with the Mining Lease granted. Extensive engagement with the Ngaanyatjara Community continued during the quarter and positive progress was made towards completion of the Mining Agreement.

“The team continues to assess the impact of cost inflation and the operational environment on project cost and schedule, an important consideration as we approach a final investment decision.

“We continue to explore the province potential of West Musgrave with the assessment of the Succoth copper deposit where drilling was completed in June. We now expect to release a Succoth Mineral Resource and Life of Province Study in H1 2023 due to delays with core processing and laboratory results.”

In Brazil, “The accelerated program to deliver a Pre-Feasibility Study for Santa Lucia, a potential additional satellite mine in the Carajas East Hub, in Q4 2022 is progressing well with encouraging results from the drilling completed to date.”

Cole said in the statement “Our financial position remains strong with $82 million net cash balance at the end of the quarter and we increased our corporate debt facility limit, early in the quarter, from $480 to $700 million for an extended five-year term.

“Combined, they provide substantial working capital liquidity and a solid foundation for investment in our brownfield expansion projects at Carrapateena and Prominent Hill.”

OZ shares fell 3.7% to $17.
…………

Meanwhile South32 (ASX: S32) Monday reported mixed fourth quarter output for the commodities it produces as it also grappled with adverse weather and labour availability.

But the company saw a positive from high prices – especially for coal as well as a very solid performance in its Australian alumina business.

While Covid was a constant in many of the company’s mines, along with labour shortages, South32 seemed to be happy with costs under control, saying in Monday’s ASX release.

“We expect to report FY22 Operating unit costs in-line with our previously updated guidance at the majority of our operations, with lower than anticipated producer currencies providing a benefit in the June 2022 quarter.”

Looking at the year and June quarter, South32 said it “stable operating performance allowed us to capitalise on record conditions for a number of our commodities, with strong sales in the June 2022 quarter capturing the benefit of high prices.”

“FY22 copper equivalent production was 99% of current guidance, as the majority of our operations delivered to revised plans, despite impacts from weather and labour availability caused by the COVID-19 pandemic

Worsley Alumina (in WA) achieved record annual production in FY22, of 3.991 million tonnes exceeding guidance and operating above nameplate capacity of 4.6 million tonnes, as we realised the benefit of improvement initiatives

Cannington in Queensland beat our previously upgraded FY22 zinc equivalent production guidance by 2%, successfully transitioning to a 100% truck haulage operation in the June 2022 quarter

Cerro Matoso in Colombia achieved a 22% increase in payable nickel production, despite unplanned maintenance and weather-related disruptions impacting the operation during H2 FY22

Illawarra Metallurgical Coal in NSW successfully completed three longwall moves across Appin and Dendrobium during the year, with strong price realisations for our premium quality hard coking coal supporting record pricing.

“Illawarra Metallurgical Coal saleable production decreased by 15% to 6.509 million tonnes in 2021-22 because of the three longwall moves. We also stopped our opportunistic energy coal sales of low-margin coal wash material.

“Production volumes declined by 11% in the June 2022 quarter following adverse weather and Covid-19 related labor restrictions that also impacted the operation’s ability to maintain budgeted development rates.

“Notwithstanding these disruptions and the volatility witnessed across seaborne coal markets, our geographically diverse customer base supported a 29% increase in sales volumes in the quarter as we drew down inventory, capturing the benefit of very strong index prices.”

South Africa Manganese delivered record production in the June 2022 quarter as we increased our Manganese production by 22%, supporting higher sales with customer demand for our premium products delivering strong price realisations

The company’s share of aluminium production rose 5% in the June 2022 quarter “as we closed the acquisition of an additional shareholding in the hydro-powered Mozal Aluminium smelter and achieved first production from the restart of our 100% renewable powered smelter in Brazil.”

And South 32 said it successfully completed the acquisition of Sierra Gorda in the June half, “receiving our first US$68M in distributions from the joint venture in June 2022.”

CEO Graham Kerr said in the statement on Monday “Our teams delivered another strong operating performance in the June quarter, despite challenges that included extreme weather, supply chain disruptions and reduced labour availability caused by the COVID-19 pandemic.

“Record annual production at Worsley Alumina, along with record quarterly production at South Africa Manganese and a strong sales result in June, capturing the benefit of high prices, capped another year of substantial progress for South32.

“Our strong financial position and capital management framework, which is designed to reward our shareholders as our financial performance improves, supported further returns across the year via our on-market share buy-back, bringing total returns under our capital management program to US$1.9 billion since its inception.”

Reflecting to upbeat nature of the report, South32 shares added 0.8% to end at $3.56.

Are you a 708 sophisticated investor?

A sophisticated investor is defined under Section 708 of the Corporations Act (net assets of $2.5 million or annual incomes in excess of $250,000).

They are eligible to receive information regarding wholesale investment opportunities that are not available to regular or retail investors.

Please subscribe if you would like to be alerted to these types of opportunities.