brokers say sell ?, page-2

Macquarie report:

http://macq.wir.jp/e.ut?e=4s6Qp0jJrzWxG0bBZ7W62VnLvQh

Oz Minerals

Handing cash back

Event

* Oz Minerals (OZL) reported its 2010 financial results.

Impact

* For the record. OZL reported underlying 2010 NPAT of A$398m which was 6% below Macq forecast of A$425m. However, it is worth noting that this underlying number includes a pre-tax FX charge of A$90m predominantly reflecting translation losses on the significant levels of cash that have been held on the balance sheet (A$1.3bn in Dec 10 vs. A$1.4bn in June 10). Adjusting for the unrealised component of this, we estimate a comparable underlying NPAT of A$446m.

* Distributions and capital management. Of greater focus, OZL announced specific capital management initiatives consisting of a capital return of A$0.12p/share (amounting to A$390m), an on market buy back valued at approximately A$200m and a 10:1 share consolidation. In addition, OZL announced an unfranked A$0.04p/s dividend for the half, bringing the total dividend for 2010 to A$0.07p/s. This represents a payout ratio of c.56% of NPAT from normal operations. With respect to future franking of dividends, OZL did not pay any taxes in 2010 (as income was sheltered by credits) but do expect to incur tax expense in 2011 with cash taxes beginning to be paid in 2012.

* Outlook and guidance. The outlook statement indicates the company is still seeing "significant opportunities for acquisitions, despite high commodity prices" and noting that in addition to the funding available on the balance sheet, using scrip and raising debt also remain options. In terms of production, OZL reiterated guidance provided at their 4Q10 operating results with 2011 production expected to be 100-110kt of copper and 185-205kt of gold.

Earnings and target price revision

* No change.

Price catalyst

* 12-month price target: A$1.95 based on a DCF methodology.

* Catalyst: Underground feasibility study results in 2Q10

Action and recommendation

* Another solid set of results. We rate OZL Outperform with a recently increased price target of $1.95ps. OZL has established a strong operational track record at Prominent Hill. With copper continuing to be our preferred base metals exposure, we believe OZL is well positioned to generate strong near-term cashflows and continue to pursue its regional and near mine exploration program to extend the base-case LOM.