Oz Minerals Plans Large Fully Franked Dividend

No-moat-rated Oz Minerals’ OZL 2022 net profit after tax slumped to AUD 207 million, or AUD 0.62 per share, from AUD 531 million a year ago. The more than 60% decline was driven mainly by higher production costs, lower sales volume, and the lower average copper price. Production costs accounted for about half of the decline, with volume and prices most of the remainder. EBITDA fell 40% to AUD 693 million with the contribution from Prominent Hill more than halving on lower production and higher unit costs while the EBITDA loss from exploration and development increased about 140% reflecting elevated activity. Oz is busy advancing multiple projects, notably West Musgrave for nickel and copper as well as expansions at Carrapateena and Prominent Hill for copper and gold.

The result is largely academic with Oz likely to be acquired by BHP in April. The deal is subject to certain conditions, including an independent expert’s report and a shareholder vote expected in April. We make no change to our AUD 28.25 fair value estimate, which is in line with the BHP bid. We expect the deal to go ahead, given that the offer is well ahead of our stand-alone AUD 20 fair value estimate. This is down from AUD 22.50, driven by increased unit cash costs consistent with Oz’s 2023 guidance. Subject to the outstanding conditions and in the absence of a superior bid, we think it is in shareholders’ interests to vote in favour of the deal.

Oz remains in strong financial shape with modest net debt of about AUD 250 million at the end of 2022. We think Oz has taken a prudent approach to managing its balance sheet to damp the impact of potential commodity price volatility while providing funding for growth. Although no final dividend was declared given that Oz has an offer, the company plans to pay a fully franked special dividend of AUD 1.75 per share before the acquisition by BHP. This is subject to the scheme meeting becoming effective and will come off the price to be paid by BHP.