oz ready to mine its future

AFR 6/7/09 Michael Vaughan

Some extracts from the fin Review article last Monday. It is quite long, but worth a read.

"The miner’s P Hill operation in SA is cash flow positive, it’s new chief executive Terry Burgess starts next month, it has roughly $AUD 980M in cash and no debt. On the one hand the company looks extremely vulnerable. On the other, it looks stronger than ever and well placed to take advantage of the opportunities created by the downturn in the resources sector.

Burgess, the head of business development for Anglo American’s base metal’s division, does not get his feet under the desk at OZ until Aug 1 and will make his first public appearance on Aug 5, when he steps on stage as the last speaker at the Diggers and Dealers Mining Forum in Kalgoorlie. This leaves the miner particularly exposed to a hostile bid for the reminder of the month.

New operations producing 100,000t of Copper and 85,000 oz of Gold are a rare thing in the world right now, which is what makes P Hill so attractive. ….. plenty of exploration upside left, there is enough there to attract a major.

Analysts have predicted the 5 stage expansion of O Dam could cost as much as $US 20 billion, which would stretch even a balance sheet with BHP’s capabilities, suggesting it will be undertaken painstakingly, and the certainty provided by concentrate and perhaps ore from P Hill would be welcome.

Xstrata boss Mick Davis outlined the reasons he believed copper had the strongest fundamentals of any metal. “It sits at the heart of the reconstruction, at the heart of the investment in basic infrastructure which ultimately will take place in the US and Europe when they stop arguing among themselves and it’s already taking place in China. So my view is, with the supply side of copper having come off a great deal as a result of the responses the industry took in relation to the crisis, and the putting back of projects which were going to brought on line – and those have been put back a good few years – I would think that Copper probably sits at the top of my list. It’s also a great commodity because China clearly doesn’t have a lot of it.”

But if a bid does not materialise in the short term, OZ and it’s shareholders still appear to have a bright future.

Studies into an underground expansion of P Hill which, based on preliminary work could supply additional ore to justify a 1 million tonne to 2 million tonne expansion of the 8 million tonnes a year plant, have also been reactivated with no timetable yet set for completion.

The cash also provides a platform for the miner to undertake capital management initiatives to reward shareholders who have been to hell and back in the past nine months. Exactly what form this will take will be decided in the coming months, but a special dividend looks like a real option. A consolidation of it’s capital also seems like an appropriate strategy given the large number of shares on issue and the miner’s new size.

Everyone will be hoping the formidable cash reserves will be put to better use the second time, if OZ gets the chance."

I agree with the sentiments that have been written. They sound logical and doable. Also, the options presented were backed with data justifying them.

HT1