southern cross equities. stong buy 4.50, page-4

This is the final paragraph of a rather long analysis by Charlie Aitken of Southern Cross Equities:


Oz minerals

We believe the Oz Minerals negative consensus view is typically the "glass half empty" approach to investment where short termism overrides the positive long term fundamentals. In an environment where the rising cost of debt is exposing companies with weak balance sheets, Oz Minerals has effectively no debt and $A1.2b in cash. We expect Oz Minerals to generate $A1.5b in operating cashflow next year implying a FY 09 price to cash flow multiple of 5x compared to our target of 8 to 10x. In addition on our figures, the merged entity is now trading on FY 09 PE of 10x.

However, in the meantime the negative view remains focused on the exposure of the merged entity to the zinc price. It is worth noting that with the first copper production from Prominent Hill, zinc is expected to represent only 45% of total EBIT next year. In this respect next Oz Minerals will sit just outside the top 15 global copper producers with approx 200kt in production.

Further, in a rapidly consolidating global resource industry driven by the aim of achieving production scale and commodity diversification, Oz Minerals reflects both themes. We think the market has focused on the short term OXR earnings dilution, and the impact of the zinc price, while disregarding the strength of the balance sheet, strong cash flows, and the unique opportunity to expand the strength and scale of the diversified model. We think Oz Minerals is a STRONG BUY and our 12 month target is $4.50. Yes, we stand by our 12 month price target 68% above the current OXR share price and we think the "mighty Oz" is a complete risk adjusted bargain at current prices. This is the bottom in zinc and the bottom in OXR.