Here is my take on what is obviously the most disappointing...

Here is my take on what is obviously the most disappointing quarterly report I have seen from OZL in recent time:
The Bad News
• Given that Ankarta produces around 6 to 7 Kt of CU per quarter, over the last two quarters, the open pit has produced less than ½ the metal that is was this time last year.
• Copper stocks on the ROM pad are now exhausted as a result of milled tons being higher than mined tons for a number of successive quarters. This means that for the remainder of the mine life, production will be sensitive to the performance of the pit. This was probably evitable given that the plant has been running at 25% above nameplate capacity for a number of years. I suspect that the depletion of copper stockpiles on the ROM pad is a key reason why the Q4 guidance is significantly lower than expected.
• By my calcs, the PH operation is cash flow negative (including deferred waste) by around 25M over the quarter. Add additional outflows for exploration (say 15M) and CAPEX at Ankarta and Malu UG (say 20 to 30M) and corporate costs, the pile of cash is quickly declining, by say 60 to 80M over the quarter. Going by the guidance, Q4 should have similar numbers.
• Successive bad news is starting to give the stock a high risk stigma.
The Good News
• While they have obviously stuffed up with their guidance, they do appear to be focused on long term efficiency, rather than producing a good quarterly.
• They are mining well below reserve grade (0.65% in 2013 vs 0.95% reserve grade), so things will get better at some stage, hopefully early in 2014. Higher production will lower costs and improve cash flows.
• From say 2015 onwards, most of the heavy lifting will be complete and the pit will produce significant cash flow in its final three years. Add additional production from Malu UG and PH may have some of its best years between 2015 and 2018.
• No bad news from drilling at Malu UG.
• At Khamsin, best result to date with 400m at 1.2% Cu eq including over 125m at over 2% Cu eq. There appears to be a trend of progressively improving results so there is a prospect of a significant intersection at any time (3 drill rigs are onsite).