Victoria Aug 12, 2015 (Thomson StreetEvents) -- Edited Transcript of OZ Minerals Ltd earnings conference call or presentation Wednesday, August 12, 2015 at 1:15:00am GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Damon Hunt OZ Minerals Limited - Head of Corporate Affairs * Andrew Cole OZ Minerals Limited - MD and CEO * Andrew Coles OZ Minerals Limited - CFO ================================================================================ Conference Call Participants ================================================================================ * Christopher Russell Advertiser News Media - Media * David Stringer Bloomberg LP - Media * Barry Fitzgerald The Australian - Media ================================================================================ Presentation -------------------------------------------------------------------------------- Damon Hunt, OZ Minerals Limited - Head of Corporate Affairs [1] -------------------------------------------------------------------------------- Good morning. Welcome to the media webcast for OZ Minerals 2015 half year results. My name is Damon Hunt and I'm the Head of Corporate Affairs. Joining me today is Andrew Cole the CEO and Managing Director of OZ Minerals and Andrew Coles our CFO. Just a reminder for everybody, this webcast is being recorded. So without further ado, I'll hand over to Andrew. -------------------------------------------------------------------------------- Andrew Cole, OZ Minerals Limited - MD and CEO [2] -------------------------------------------------------------------------------- Yes, thanks very much Damon and good morning and welcome to everybody on the phone call. These are my first half year results and I'm calling you today from our new corporate office here in Adelaide. I am going to keep the -- my commentary here this morning fairly short. I'm making the assumption that you've listened to the webcast earlier on today. So I'm just going to go through the summary pages. And then I will open it up for questions. Let me just focus on a couple of things here, really, for the highlights. The first thing I'd like to talk about is Prominent Hill and our execution of our strategy. So we do have a clear strategy and we are executing on this strategy and this has resulted in some good strong operational performance in the first half. We have accelerated copper production from Prominent Hill operation up to 64,000 tonnes of copper in the first half. This is up by 23,000 tonnes, which is 59% more than the first half in 2014. So the way we've done this is by accelerating our open pit mine plan, which has allowed, or given us, access to higher grade open pit ore. We've also prioritised the Malu high grade underground ore into the mill. So we are preferentially taking underground ore and pushing that through in place of open pit ore. And I think the Prominent Hill site leadership team have done a fantastic job this first half. They've really embraced the strategy and are really driving some solid operational improvements. We are building confidence in the way we plan and the way we deliver against plans. So as a result of this we are guiding the market to the upper end of our annual guidance, 110,000 to 120,000 tonnes of copper. On the -- one part of our strategy which is a lean business. We have actually quite a good natural advantage in our open pit. So despite the open pit getting deeper and haul routes getting longer from the bottom of the pit to waste dumps, the amount of waste that we are moving going forward is reducing quarter-on-quarter, half-on-half, which is very favourable for the operation going forward. And this trend is going to continue. So the average stripping ratio for Prominent Hill over the rest of its life of mine is actually one-to-one. In addition to this natural benefit we have in the open pit, we're driving equipment productivity and we're working to keep our overhead costs in line with the level of activity on the sites, so making our overhead costs as variable as they can be. Malu Underground has, in part, enabled the production levels that we've delivered for this first half. We commissioned the underground operation three months ahead of plan, so at the end of the first half. We're actively pulling higher grade stopes forward and we're actively pursuing improvement in equipment performance such as availability and utilisation in the underground workings. The Prominent Hill underground team has also recently set some underground development records. And I say that just to evidence the improvements that they're making up at Prominent Hill. On Carrapateena, we've seen some very good progress made on the value enhancing projects which I flagged to you earlier in the year. The rail study has -- the contract for that rail study has been awarded, so the engineering has commenced. The hydromet concentrate treatment process plant has now been wet commissioned and we are starting to push Prominent Hill ore through that plant. And on the high grade option, we're now focused on rebuilding the resource to come up with a smaller but higher grade, higher margin option so we can compare this to our other Carrapateena options later in the year. So I do look forward to talking more about all of these as we bring results to you in the coming months. On the restructure of OZ Minerals, our corporate office is now in Adelaide and with the half year results complete, the Melbourne to Adelaide transition is also complete. We've restructured the Company to form a decentralised business model with our corporate team focused on delivery of the strategy, on corporate activity, on strategy execution and growth of our business. The site teams are focused on delivery of operating results from the assets. And I think that the results from this first half demonstrate that the Prominent Hill team have embraced the strategy and are delivering on it. We have a new executive team. We have many new people in our corporate office. These people have joined us from all over the country and some from internationally. They're energised and we've got a clear strategy in place. So this enabling work is very important, of course, because strong operational performance translates directly into strong financial performance. So to flag just a couple of things with you, revenue for the first half of 2015 has increased by 11% or up AUD39 million to AUD390 million and this excludes the revenue generated for Malu Underground, because that was capitalised as part of the project. Underlying EBITDA increased 64% or AUD78 million up to AUD200 million. NPAT increased by AUD66 million to AUD52 million in the first half, which again, was negative last period, resulting in an earnings per share of AUD0.17, this was also negative in the same period last year. I want to touch a little bit on how we've done this and pleasingly and with all credit going to the OZ Minerals team, these improvements have come from things within our control, not from price. Whilst there is a loss of media coverage of declining commodity prices, the reality is Australian dollar copper prices have been flat over the last two years. So the Australian dollar copper price in the first half of 2014 was AUD3.43 a pound. The average copper price in Australian dollars in the first half of 2015 is AUD3.44. So the improvements we've seen in the operating performance and the financial performance from OZ Minerals has come from declining waste stripping profiles, productivity improvements and building a strong cost culture in the business. These things are generating a very attractive cash generation profile for OZ Minerals going forward. Impressively, the Malu Underground has been cash flow positive from the first half, despite it theoretically being under construction. Our cash position is up 88% since the end of 2014 and now stands at AUD410 million. We also have an undrawn debt facility of $200 million which gives us capital of some AUD680 million for gross activities. On the dividend, the strong performance and a clear dividend policy has allowed the Board to declare an interim dividend of AUD0.06 per share, so that's AUD18.2 million as an interim dividend. So I'm very pleased with the performance of OZ Minerals in this first half, but this is -- we do have more work to do. So we're under no misconception that we have finished our journey. We're on the start of our journey. We've got a lot more work to do, but I do think the results in the first half are an indicator that we are embracing our strategy and we're commencing execution of it. So that's a summary of the performance in the first half of 2015 for OZ Minerals. What I'd like to do is open it up to questions if you would like to ask any. Thanks very much. So over to you operator, if you could remind people on how to ask questions please. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Thank you. (Operator instructions). Now the first question comes from Chris Russell with News Corp. Go ahead please. -------------------------------------------------------------------------------- Christopher Russell, Advertiser News Media - Media [2] -------------------------------------------------------------------------------- Thank you. Hello Andrew and congratulations on the result. Just a couple of -- few questions to run through. I think they're pretty straightforward, one on royalties one on uranium and one on jobs. On the royalties, the change in the rate and the increase in the amount from 1.5% to 5%, that's, I presume, just the end of the discount period for new mines and it's clicked over to the higher rate? -------------------------------------------------------------------------------- Andrew Cole, OZ Minerals Limited - MD and CEO [3] -------------------------------------------------------------------------------- That's absolutely correct Chris, yes. -------------------------------------------------------------------------------- Christopher Russell, Advertiser News Media - Media [4] -------------------------------------------------------------------------------- Yes, so there's nothing -- it's just you've come to that five year period? -------------------------------------------------------------------------------- Andrew Cole, OZ Minerals Limited - MD and CEO [5] -------------------------------------------------------------------------------- Yes. That five year period I think expired I think in August last year. -------------------------------------------------------------------------------- Christopher Russell, Advertiser News Media - Media [6] -------------------------------------------------------------------------------- Right. On the uranium, the analysts were talking a fair bit about it. I don't want to sort of bore you -- bog you down on that. But presumably the concentration rate, even though there's a higher level of uranium in the higher grade, it's still not at a sellable quantity, it's an impurity in the concentrate? -------------------------------------------------------------------------------- Andrew Cole, OZ Minerals Limited - MD and CEO [7] -------------------------------------------------------------------------------- Yes, that's correct Chris. There's simply an impurity and it's still relatively low levels, but yes, it's an impurity. It's not something you could make money from. -------------------------------------------------------------------------------- Christopher Russell, Advertiser News Media - Media [8] -------------------------------------------------------------------------------- Yes, so it's not a credit -- -------------------------------------------------------------------------------- Andrew Cole, OZ Minerals Limited - MD and CEO [9] -------------------------------------------------------------------------------- (Inaudible) uranium prices. -------------------------------------------------------------------------------- Christopher Russell, Advertiser News Media - Media [10] -------------------------------------------------------------------------------- Yes, it's a discount, not a credit on the sale? -------------------------------------------------------------------------------- Andrew Cole, OZ Minerals Limited - MD and CEO [11] -------------------------------------------------------------------------------- Unfortunately, yes. -------------------------------------------------------------------------------- Christopher Russell, Advertiser News Media - Media [12] -------------------------------------------------------------------------------- Yes, okay. And on jobs, you said in the call that your employee rate was down 25%. I think that's year-on-year is it, or over what period? -------------------------------------------------------------------------------- Andrew Cole, OZ Minerals Limited - MD and CEO [13] -------------------------------------------------------------------------------- Since the same time last year, Chris. -------------------------------------------------------------------------------- Christopher Russell, Advertiser News Media - Media [14] -------------------------------------------------------------------------------- Yes, so year-on-year. And are you sort of fairly -- and I know you can never sort of give guarantees on these things, but are you fairly confident that you're at a stable level now with no sort of further significant decreases on the horizon? -------------------------------------------------------------------------------- Andrew Cole, OZ Minerals Limited - MD and CEO [15] -------------------------------------------------------------------------------- So Chris I need to qualify the 25%, because the 25% is an OZ Minerals number. -------------------------------------------------------------------------------- Christopher Russell, Advertiser News Media - Media [16] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Andrew Cole, OZ Minerals Limited - MD and CEO [17] -------------------------------------------------------------------------------- But for South Australia it's not 25%, because we've closed our Melbourne office and created the Adelaide corporate office. -------------------------------------------------------------------------------- Christopher Russell, Advertiser News Media - Media [18] -------------------------------------------------------------------------------- Right. -------------------------------------------------------------------------------- Andrew Cole, OZ Minerals Limited - MD and CEO [19] -------------------------------------------------------------------------------- I actually don't know what the percentage is, but it's much smaller than 25%. So the net impact on South Australia is probably negligible I would say. -------------------------------------------------------------------------------- Christopher Russell, Advertiser News Media - Media [20] -------------------------------------------------------------------------------- Right. -------------------------------------------------------------------------------- Andrew Cole, OZ Minerals Limited - MD and CEO [21] -------------------------------------------------------------------------------- We've taken some roles from site as we've restructured, but we've built a corporate office in Adelaide. So that 25% is important from a cost base, but doesn't impact South Australia to anywhere near the same degree as it might sound. So that's the first piece. Sorry, the other thing that is included in there is with the open pit winding down, we did demobilise an excavator and some trucks. So that also had a flow on impact to people at Prominent Hill. The next big milestone or unfortunate milestone for Prominent Hill will be when we demobilise another excavator and trucks early next year. So that will also have an impact on people of course as the open pit gets deeper. It can only handle so much equipment in the bottom of the pit. So early next year we will need to demobilise that bit of extra fleet. So there will be an impact there. But from a corporate perspective, I'm comfortable that we've got a stable operating team. We've got a new design, we've got a new strategy and we've got plenty to do. So I see it as quite an exciting time going ahead for the Company as a whole. -------------------------------------------------------------------------------- Christopher Russell, Advertiser News Media - Media [22] -------------------------------------------------------------------------------- With that early next year, sort of what sort of numbers of people are you talking about, would that be? -------------------------------------------------------------------------------- Andrew Cole, OZ Minerals Limited - MD and CEO [23] -------------------------------------------------------------------------------- Chris, I don't know what the numbers are off the top of my head. Yeah, I couldn't actually quote you. I'd be totally guessing Chris. It will be -- I don't actually know how many trucks either yet, because we haven't done the detailed planning for that. But it will be definitely one excavator and whatever associated trucks are tied to that excavator. -------------------------------------------------------------------------------- Christopher Russell, Advertiser News Media - Media [24] -------------------------------------------------------------------------------- Okay, right thank you. -------------------------------------------------------------------------------- Andrew Cole, OZ Minerals Limited - MD and CEO [25] -------------------------------------------------------------------------------- No problems Chris. -------------------------------------------------------------------------------- Operator [26] -------------------------------------------------------------------------------- Thank you. The next question comes from David Stringer of Bloomberg. Go ahead please. -------------------------------------------------------------------------------- David Stringer, Bloomberg LP - Media [27] -------------------------------------------------------------------------------- Hi, good morning gents. Two things if I may. First of all I just wondered how much of a concern it is to the Company as a commodity exporter what we've seen yesterday with the currency devaluation in China. There's certainly suggestions that, in the short term at least, that could lead to some decline in commodity demand there and I imagine China is, if not an important market, the most important market for you guys. So if you can address that and secondly, I know what you've said there on price and clearly yes, the Aussie dollar copper price is flat, as you say. But what about the longer term and medium term fundamentals for copper? There is still a fairly bearish outlook in the short term. Can you just run us through how you see the market over the next couple of years? Thanks. -------------------------------------------------------------------------------- Andrew Cole, OZ Minerals Limited - MD and CEO [28] -------------------------------------------------------------------------------- Sure. Let me answer some things fairly generally, David and then I might ask Andrew just to comment on a couple of these specifically. We've got a very diversified customer base. You mentioned China. We do have customers in China. But not most of them and we're not dependent on China, not by any means. So we've got quite a diversified customer base, which is one of the strengths that we've been focused on building for OZ Minerals, going forward. As I mentioned earlier on the earlier call, I have no idea what the copper price is going to do. It will go up and it's going to go down. There will be moments where it's viewed positively and there will be moments where it's viewed negatively. I think the long term fundamentals for copper are robust. Copper is not connected to any one country. It's not connected to any one industry. There are many things that drive copper demand. I think on balance and general consensus over the long term, it is forecast for positive. So I think that's the first thing. The second thing is, OZ Minerals is in very good shape at the current copper prices and we're focusing on making it -- putting it into good shape at all commodity prices. Whether prices go up or down, I think a company needs to be resilient to market cycles and that's what we're focussed on. I think the Prominent Hill team in particular, have done a very good job on getting it into a position that helps us with that. I think we've got more work to do. So I might just throw to Andrew to answer a couple of extra pieces to that. -------------------------------------------------------------------------------- Andrew Coles, OZ Minerals Limited - CFO [29] -------------------------------------------------------------------------------- I'm not sure what extra there is Andrew. You've comprehensively answered, I think. But if there is something else you want to know about that David, please feel free to ask. -------------------------------------------------------------------------------- David Stringer, Bloomberg LP - Media [30] -------------------------------------------------------------------------------- On the devaluation specifically, obviously you said that you -- -------------------------------------------------------------------------------- Andrew Cole, OZ Minerals Limited - MD and CEO [31] -------------------------------------------------------------------------------- Oh of the Chinese currency? -------------------------------------------------------------------------------- David Stringer, Bloomberg LP - Media [32] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Andrew Coles, OZ Minerals Limited - CFO [33] -------------------------------------------------------------------------------- Yes look, as an economist, I'm not going to start proselytising on what's happening in the global economy. But I think what the Chinese have done overnight has been in response to other currencies, and they've been running at peak for a while and I think they've decided they've had enough of that. I think we need to be careful not to look at short term movements and look at the longer term trends and I think there that the really good thing about copper is that it is not dependent on one sole use. It used to be in the zinc game and there, as galvanising demand drops and -- you're going to see zinc prices collapse. Copper is used, everything from major infrastructure, right through to commercial consumer goods and very wide demand base. We see the demand for copper being very strong in the future, relatively and more importantly, it's hard to find. The places it tends to be found are places that are difficult to do business in. So the cost of getting copper has been hard and the demand is good. Those are pretty good supports for the long term price of copper. In terms of the short term variability of it, we don't even try, quite frankly, to predict what that's going to do. -------------------------------------------------------------------------------- David Stringer, Bloomberg LP - Media [34] -------------------------------------------------------------------------------- Thanks for that. I appreciate it. -------------------------------------------------------------------------------- Andrew Cole, OZ Minerals Limited - MD and CEO [35] -------------------------------------------------------------------------------- Thanks David. -------------------------------------------------------------------------------- Operator [36] -------------------------------------------------------------------------------- Thank you. (Operator instructions). Your next question comes from Barry Fitzgerald of News Limited. Go ahead please. -------------------------------------------------------------------------------- Barry Fitzgerald, The Australian - Media [37] -------------------------------------------------------------------------------- G'day gents, just following up on David's question there. The initial reaction to the Chinese move was US dollar copper down. I presume the Australian dollar is down, so Australian dollar copper up. But is it possible to get the net feel from OZ Minerals' viewpoint, what the Chinese did is a positive or a negative for you guys, in terms of what the realised copper price will be? -------------------------------------------------------------------------------- Andrew Cole, OZ Minerals Limited - MD and CEO [38] -------------------------------------------------------------------------------- Barry, look for me, this is such a long term gain. The decisions that we're taking at Prominent Hill for example and with Carrapateena and our corporate development approach, these are taking views over decades, not days or minutes or hours. So what China did last night is really interesting and it does cause some fluctuations, very short term. But it doesn't alter our strategy and it doesn't change our long term decision making. We're focused on much longer term things than short term variations like this. You have to be in this industry. The life cycle of exploration, discovery through development and construction and operation is so long you cannot be distracted by short term variations in markets. You just can't. But you absolutely need to be able to be resilient to ride them out, ride the troughs out and prosper in the peaks. So we're focussed on those two aspects. Being resilient in the business to survive tough times and make good money in the up times. We're focussed on the very long term. So when we make decisions today those long term decisions have real value with as little risk as we can put to them. So what China did last night, is it right or wrong? I think everyone is going to have a view. I don't know whether it's right or wrong and in terms of OZ Minerals, I don't think it really matters right now. -------------------------------------------------------------------------------- Barry Fitzgerald, The Australian - Media [39] -------------------------------------------------------------------------------- Fair enough. Just on jobs, the 25% year-on-year figure that was mentioned. Is it possible to get numbers involved in that reduction? -------------------------------------------------------------------------------- Andrew Cole, OZ Minerals Limited - MD and CEO [40] -------------------------------------------------------------------------------- I don't actually have the number on the top of my head. So Barry, those numbers will be made up of people in the corporate office, of course, from Melbourne. They're made up from a number of people at Prominent Hill. There was some exploration people involved, because we suspended exploration at Carrapateena and a couple of other places. So across the board, if you like, as we've restructured the business, but I don't have a number, I'm sorry. -------------------------------------------------------------------------------- Barry Fitzgerald, The Australian - Media [41] -------------------------------------------------------------------------------- Would it be possible to get one later on? -------------------------------------------------------------------------------- Andrew Cole, OZ Minerals Limited - MD and CEO [42] -------------------------------------------------------------------------------- Yes, we'll dig one out for you, Barry, and we'll get back to you. -------------------------------------------------------------------------------- Barry Fitzgerald, The Australian - Media [43] -------------------------------------------------------------------------------- Okay, thanks. Just on Carrapateena, I was hoping you might be able to provide a bit of colour abound the investigation into perhaps a smaller, higher grade shale. I was just wondering what is it about the nature of that ore body that lends -- that gives you some thought that maybe we should consider this pathway. Has it got a high grade core or is it -- -------------------------------------------------------------------------------- Andrew Cole, OZ Minerals Limited - MD and CEO [44] -------------------------------------------------------------------------------- It does have a high grade core. So Barry, the centre of the Carrapateena resource, it's got a bornite core to it. It starts effectively at the top or at the unconformity. I think that bornite core, there are parts of it that go well over 4%. So there is a high grade core to it and it does grade out as you get to the edges. The studies that we've done at OZ Minerals over the last number of years have focussed mainly on the establishment of the block cave operation, which is a large, very long life, fairly high capital intensity project. So we want to make sure that a higher grade, smaller, higher margin, lower capital intensity project doesn't actually make more sense. Whether it does or not, I don't know. But I think it's very important that we very clearly understand both options. So when we go to make the decision on what we do with Carrapateena, it's the right option. A high grade, high margin, smaller asset obviously has some natural advantages. Less capital to build it, of course. You can get into cash flow in a much shorter amount of time. So I think it's something that is worth following up. A lot of that material was actually published in the PFS Report originally. It just doesn't seem to have got much traction nor transparency. So I aim to give it some transparency and make sure that we follow that resource and high grade option as best we can. -------------------------------------------------------------------------------- Barry Fitzgerald, The Australian - Media [45] -------------------------------------------------------------------------------- Okay and does that tell us anything about the progress or otherwise of potential joint venture partner negotiations for Carrapateena? -------------------------------------------------------------------------------- Andrew Cole, OZ Minerals Limited - MD and CEO [46] -------------------------------------------------------------------------------- No, Barry. So at the moment our entire focus is on improving the value proposition and reducing the risk profile at Carrapateena. What we've said and we're on track to do this, is in the first quarter of next year to release a new PFS, based on the options and the projects we're progressing for Carrapateena. At that time, we will decide how we're going to progress to search for a partner to help us construct it, assuming we build the large block cave operation. -------------------------------------------------------------------------------- Barry Fitzgerald, The Australian - Media [47] -------------------------------------------------------------------------------- Right. I guess that's what the point I was trying to make was, so potentially you could go alone at Carrapateena, with this smaller, higher grade shale? -------------------------------------------------------------------------------- Andrew Cole, OZ Minerals Limited - MD and CEO [48] -------------------------------------------------------------------------------- Look Barry, there is an awful lot of things to be done before we can answer that question definitively. But if here is a high grade, smaller project to be had there, depending on the size, et cetera, it might be something we can do ourselves. But we certainly cannot do the block cave project that is currently defined by the PFS ourselves. It's too big and too high risk. -------------------------------------------------------------------------------- Barry Fitzgerald, The Australian - Media [49] -------------------------------------------------------------------------------- Okay and just on the dividends -- certainly it was a bit higher than I was expecting. Did -- was it pumped up a bit by the inflow of cash from the Sandfire sale? Or was it under this new metric you've got 20% of whatever it was? -------------------------------------------------------------------------------- Andrew Cole, OZ Minerals Limited - MD and CEO [50] -------------------------------------------------------------------------------- The Sandfire sale, I think I mentioned this in our quarterly result. The Sandfire proceeds are included in the net cash generation. We defined that fairly early on, so that shareholders can share in the proceeds of that sale, if you like. So yes it is. -------------------------------------------------------------------------------- Barry Fitzgerald, The Australian - Media [51] -------------------------------------------------------------------------------- Okay, great. Okay, thanks guys. -------------------------------------------------------------------------------- Andrew Cole, OZ Minerals Limited - MD and CEO [52] -------------------------------------------------------------------------------- Okay, thanks Barry. Okay, thank you very much for your time this morning. I think we'll close the call now and we look forward to talking again. Thank you.
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