-------------------------------------------------------------------------------- Stock: OXR AU Volatility Index: high
Oxiana (OXR) released the results of its pre-feasibility study on the Prominent Hill project in South Australia.
Impact
Project parameters confirmed. OXR confirmed our expectation of the project being developed as a large open pit mine, producing 8 million tonnes per annum of copper-gold ore. Mine life in the open pit is forecast at nine years, however we believe a longer life open pit followed by underground mining is realistic.
Early production enhanced. Production in the first few years will be enhanced by the presence of near-surface high grade copper and gold-only zones. Annual production in years 1-3 is forecast at around 125 thousand tonnes of copper, 135 thousand ounces of gold and 500 thousand ounces of silver.
Competitive operating costs. Operating costs at Prominent Hill are forecast to average US55-60c per pound over the life of mine, with costs considerably lower in the early years. At this level, Prominent Hill is in the second lowest cost quartile for global copper mines.
Capital cost increased. While the production side of the project came in as expected, there was a considerable increase in overall capital costs, from around $400m to $530m. However, $130m of this capital relates to off-site infrastructure (power, water, rail, port) and will most likely be financed either off-balance sheet or through the use of build-own-operate contracts.
Production by second half08. OXR plans on undertaking a bankable feasibility study over the next 12 months at a cost of around $15m. If the company proceeds to development, which we believe is likely, first production from Prominent Hill could be as early as second half 2008.
Earnings revision
No change.
Price catalyst
12-month price target: A$1.20.
Catalyst: Expansion potential at both Sepon gold and copper, plus completion of feasibility study at Prominent Hill.
Action and recommendation
OXR remains one of our key preferences in the precious and base metals sectors. With the potential for gold and copper expansions at Sepon, mine life extensions at Golden Grove and the Prominent Hill development, OXR has a growth pipeline second to none. We recently increased our share price target to $1.20, appropriate (if not conservative) based on the company's forecast earnings growth and continued positive outlook for copper, zinc and gold
OXR Price at posting:
0.0¢ Sentiment: None Disclosure: Not Held
