- By Holmes Osborne, CFA
Oz Minerals (OZMLF) is an Australian gold and copper miner with no debt. The miner is a great way to invest in copper if you ever think the industrial metal will go higher.
The company has 303 million shares and trades at a market cap of $1.875 billion Australian dollars ($1.4 billion U.S.). The trailing 12-month dividend is 12 cents Australian, and the dividend yield is 3.2%. Trailing 12-month earnings per share is 35 cents Australian, and the stock trades at a price-earnings (P/E) ratio of 17.6.
Revenue was $1.116 billion Australian in 2011 and dropped to $644 million Australian in 2013, $831 million Australian in 2014 and $879 million Australian in 2015. What's unbelievable is that Oz holds $564 million Australian in cash and no debt. It also has $94 million Australian in accounts receivables and $399 million Australian in ore concentrate.
Oz owns 442.8 million shares in uranium miner Toro Energy (TOE.AX) worth $18.6 million Australian. Oz also owns 8 million shares in Minotaur (MEP.AX) worth $664,000 Australian. Both miners are penny stocks.
The company estimates that it will produce 115 to 125 tonnes of copper in 2016 from its main mine, Prominent Hill. This decreases by 10 million to 20 million tonnes every year to 2019.
Oz estimates it will produce 125,000 to 135,000 ounces of gold this year. This estimate slightly increases until 2019. Prominent is open pit and underground. There are other mines being developed including Carrapateena, five joint ventures and the island of Jamaica. There is also a large copper and nickel deposit that is being researched.
Costs for copper were 73.8 cents in U.S. currency in the first half. A class action lawsuit was settled in June for shareholders of Zinifex, a company bought out by Oz. The amount that Oz was responsible for was $24 million Australian. In recent news, Oz sold its Jamaican mine to Carube Resources for $14 million. Add that to the cash pile.
The Carrapateena project will cost approximately $975 million Australian when completed. The project includes a five-kilometer tunnel that goes underground to reach the copper deposit.
Oz does some things that few miners do. First, it pays out 20% of cash flows as dividends. Most miners pay paltry dividends. The second of course is the amount of cash and no debt, which is rare in mining. The third is that there is a $60 million Australian share buyback in place. Many miners are notorious for constantly issuing new shares, thus diluting shareholders. Oz seems shareholder friendly.
Shares were above $18 Australian per share in 2009 when copper were above $4 per pound. Copper is now $2.15 per pound, and Oz trades for $6.18 Australian. This price beats the $3 Australian per share which is what the company traded for from 2014 to the end of 2015. The price of gold has lifted shares this year. It will be a combination of a rise in gold and copper prices that will lift shares of Oz to the levels where it used to be. It's hard to imagine that shares are lower today than during the financial crisis of 2008-2009.
I like Oz. I don't know what the price of copper is going to do. Jeremy Grantham (Trades, Portfolio) of GMO thinks commodities are being hurt by low interest rates, that money is flowing into stocks and real estate. He could be right. Then again, demand from China and stockpiling of copper could hurt prices. Who knows what gold will do? If interest rates rise and the markets are strong, it will probably drop. Unless of courses things go crazy and money is looking for a safe place to hide.
Disclosure: We own no shares.
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This article first appeared on GuruFocus.