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From: MSG RSCH AU Support
Sent: Friday, 28 November 2008 1:59 PM
To: BFS MPW DNotes; BFS MPW Advisors NZ
Subject: Oz Minerals (OZL AU) - It gets worse


These Flashnotes have been approved for external distribution to clients only.

Stock: OZL AU
Name: Oz Minerals
Price: A$0.55
Market Cap (m): A$1,717
Current valuation (DCF): A$1.36
12mth price target: A$0.50
Recommendation: Underperform
Volatility index: Medium


Event

OZ Minerals (OZL) has requested a trading halt pending a response from lenders on the request for a two month extension for the refinancing of the US$420m facility.


Impact

Second negative surprise in a week. Further to the announcement on Tuesday that OZL has to refinance US$560m in debt (see Essentials, 26 November, Hard times ahead for OZ), OZL has outlined that it is required to refinance the existing facilities by 30 November, ie close of business today! The US$560m debt is split across two facilities; US$420m and US$140m. As disclosed on Tuesday the lenders of the US$140m facility have agreed to an extension, however, alarmingly the lenders of the US$420m facility have yet agree to an extension and no explanation has been offered as to what the sticking point between the parties is.
Disappointing disclosure. We are extremely disappointed the timeline of 30 November for the refinancing of the US$420m facility was not disclosed to the market in conjunction with Tuesday's announcement. This confirmed that the cash position is as tight as we had feared in downgrading our recommendation.
Rights issue on the horizon... The request for a short term trading halt in regards to debt refinancing is likely to drive speculation in the market on OZL's ability to refinance its existing debt facilities, to that extent, it would be logical to think that OZL is canvassing all funding options including a potential rights issue to secure a debt facility.


Action and recommendation

Maintain underperform recommendation and $0.50ps price target. This week's developments are deeply concerning and again highlight the extreme tightness in credit markets. In downgrading our recommendation we highlighted that the balance sheet has more debt to refinance than we had previously expected from prior OZL disclosures.

December 2007A 2008E 2009E 2010E
Sales revenue m 1,097.4 1,437.0 2,250.1 2,610.4
EBITDA m 641.0 302.2 768.9 1,062.5
EBIT m 502.0 -46.6 337.6 628.1
EBIT growth % -28.8 nmf nmf 86.1
Recurring profit m 483.9 -55.0 297.6 617.3
Adjusted profit m 320.2 -43.3 218.7 445.5
EPS adj ¢ 20.2 -3.7 7.0 14.3
EPS adj growth % -46.7 nmf nmf 103.7
PE adj x 2.7 nmf 7.8 3.9
Total DPS ¢ 8.0 5.0 0.0 5.5
Total div yield % 14.5 9.1 0.0 10.1
Franking % 0 0 nmf 100
EV/EBITDA x 0.8 3.3 1.8 1.3
GCFPS ¢ 29.8 12.2 20.5 27.8
PGCFPS x 1.8 4.5 2.7 2.0
Net debt/equity % 11.2 10.1 2.7 -8.3
Price/book x 0.6 0.3 0.3 0.3
*All values are in AUD unless otherwise stated.
Source: Company data, Macquarie Research, Nov 2008.