offer take up monitor, page-27

OZ Minerals increases its exploration budget

OZ Minerals is so convinced of the copper and gold potential of outback South Australia it has the exploration budget of a giant.

Over a period of three years, the cashed-up miner plans to spend about $180 million drilling in 16 target areas that show geophysical "anomalies", together with airborne surveys.

The program will have 10 drill rigs operating all over the 7000sqkm tenement.

OZ Minerals' operation at Prominent Hill mines a copper-gold deposit 100m below the surface. At current rates of production, the open-cut mine has a life of just eight years.

Chief executive Terry Burgess said the company had made a decision to focus most of its exploration effort at Prominent Hill, despite having other prospects in Chile, Mexico and Cambodia.

He told The Weekend Australia that the current exploration budget of about $60m a year would be extended into 2012.

The company now has cash on hand of $1.4 billion as a result of asset sales forced on it by its lenders in 2008. Instead of using that money for an acquisition spree, OZ Minerals is intent on spending it at home.

"My preferences is to put $50m-60m (a year) into exploration here than buying $50m- $60m more shares in something else," Mr Burgess said.

One major shareholder was confident that the company has good prospects, with above-forecast production rates for copper and gold and the prospect of exploration finds looming as an added bonus.

The share price has recovered 50 per cent since July to finish yesterday up 4c to $1.57.

This rise indicates that analysts were impressed with a presentation given yesterday by the senior management.

The Prominent Hill mine can be considered the smaller cousin of BHP Billiton's vast Olympic Dam mine, about 100km to the southeast.

Olympic Dam came about when in 1975 Western Mining investigated a geophysical anomaly and hit the bigtime. Now, OZ Minerals is in the hunt for another Prominent Hill, or indeed an Olympic Dam, on its block.

Mr Burgess said Olympic Dam triggered a wave of untargeted exploration activity that led to nought.

It was not until junior miner Minotour did more "systematic exploration" that it turned up Prominent Hill, he said.

OZ Minerals is also developing an underground extension about 1km from the open-cut pit that will cost $135m over two years. Another prospect to the east of the main pit is being investigated.

With a strong balance sheet, Mr Burgess said the company planned to buy out bond holders, though he did not rule out a return to having debt on the balance sheet.

Mr Burgess won't speak ill of the banks that forced the company to divest all of its mines except Prominent Hill, but others are scathing of their conduct, especially Commonwealth Bank, which they say triggered a rush by other lenders to call in their loans.

OZ Minerals was formed by the merger of Oxiana and Zinifex in June 2008. The merged entity's assets included the Sepon gold and copper mine in Laos, Golden Grove mine in Western Australia, Century zinc and lead mine in Queensland and the Rosebery mine in Tasmania.

All of these assets, except for Prominent Hill, were sold to China Minmetals Non Ferrous Metals Company.

Prominent Hill was retained because it was near the Woomera rocket range.

With production at Prominent Hill due to begin early last year, the company secured its financial position by pre-selling future production.