Martabe Sale Adds To Bright Future For ‘New’ OZ Minerals

This story features OZ MINERALS LIMITED. For more info SHARE ANALYSIS: OZL

By Chris Shaw

Having been rescued from oblivion by a takeover offer from Chinese group Minmetals, the news continues to improve for OZ Minerals ((OZL)) as the company last week announced the sale of its Martabe project, the proceeds of which will further improve the company’s financial position.

The asset has been sold to China Sci-Tech for US$211 million and while this was in some ways a disappointing price in the view of JP Morgan, the stockbroker tempered its comments by noting the company’s debt position meant achieving full value for assets was unlikely and so the outcome was in fact a reasonable one.

What it means is post the Minmetals purchase of most of the company’s other assets the company will be left with its Prominent Hill project, around $800 million in cash, only minor debt and some minor exploration interests. As JP Morgan points out, this means the company will be a pure Australian copper play with some gold by-product credits and one of notable size, thereby filling a gap in the Australian market.

On this basis the broker rates the stock as Overweight, pointing out the Prominent Hill project offers upside from exploration success and there is likely to be some corporate interest in the stock given the quality of that asset and the relatively good financial shape the company will be in once the Minmetals sale is completed.

Macquarie agrees. After admitting it has called the stock poorly of late, the broker has upgraded its rating to Outperform given the Martabe transaction leaves the company as a leading local copper play with a strong balance sheet, little geopolitical risk and upside potential from any improvement in copper prices.

Reflecting its more positive view, the broker has lifted its price target to $0.75 from $0.65 previously, while the FNArena database shows an average price target of $0.65, up from $0.64 prior to the announcement of the Martabe sale.

UBS is the only one with a more aggressive target of $0.78 while Citi is more cautious and has set its price target at $0.60. This goes along with its Hold rating, the broker taking the view while Prominent Hill offers plenty in terms of exploration and valuation upside from an extension to its current estimate of a 10 year mine life. But, says Citi, there is a lot of work to be done before this is achieved.

Credit Suisse is similarly neutral on the stock, though the broker did agree with JP Morgan that the Martabe sale outcome was a reasonable one given the company’s circumstances. Overall the FNArena database shows OZ Minerals is rated as Buy four times ad Hold five times.

Shares in OZ Minerals today are stronger and as at 11.05am the stock was up 2c at $0.695. This compares to a trading range over the past year of $0.40 to $2.17.

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