Sunday, May 24, 2009

OZ Minerals Boosting Exploration Amid Prominent Hill Mine Study

OZ Minerals Ltd., the debt-laden Australian zinc mining company selling $1.2 billion of assets, is boosting exploration work to speed expansion plans at its only remaining mine.

“We will recommence our exploration that we have had to defer and we will complete our studies into future underground and expanded pit production,” Chairman Barry Cusack said today at the official opening of OZ Minerals’ A$1.2 billion ($939 million) Prominent Hill mine in South Australia state.

China Minmetals Group, the nation’s biggest metals trader, is seeking to complete the acquisition of OZ Minerals assets next month, giving it control of the world’s second-biggest zinc mine and supplies of copper, gold and nickel. Prominent Hill, the company’s only source of revenue should the Minmetals sale be approved, will be profitable “within days” once it receives payment for the first shipment of copper concentrate to India, Chief Executive Officer Andrew Michelmore told reporters today.

The company is drilling mineral targets as it seeks to discover sufficient resources to allow for an underground expansion of the mine, Michelmore said. “We have to do a lot more drilling to be able to come to that assessment, so that will take some time and is why the cash we will have on hand will be very important,” he said, referring to the company’s cash balance of about A$700 million after the Minmetals sale.

Melbourne-based OZ Minerals fell 4.3 percent to close at 78.5 Australian cents on May 22. The stock has risen 43 percent this year and has a market value of A$2.5 billion.

Prominent Output

Output from Prominent Hill started in February and the company has forecast production of as much as 100,000 metric tons of copper and 70,000 ounces of gold this year. The open-pit mine is estimated to operate for 10 years, OZ Minerals has said.

“I’m looking forward to phase two of Prominent Hill and phase three, which will I’m sure include a major underground mine as well as more open-cut,” South Australia state Premier Mike Rann told reporters at the mine today. “What we are seeing here is the start of a series of developments.”

BHP Billiton Ltd., the world’s largest mining company, may be prepared to pay A$2.75 billion to buy Prominent Hill, located 650 kilometers (404 miles) from the state capital Adelaide, to secure copper and uranium for its adjacent Olympic Dam operation, JPMorgan Chase & Co. said in an April 28 report.

The Olympic Dam plant, about 130 kilometers from Prominent Hill, has excess annual capacity equivalent to about 50 percent of Prominent Hill’s copper concentrate output, JPMorgan said. BHP has previously bought concentrate from the mine to treat at Olympic Dam.

After Completion

Michelmore, 56, and other senior executives will join Minmetals once the sale is completed. Michelmore, who will be CEO of the Chinese company’s Australian unit, declined to comment on the role or Minmetals future strategy in Australia.

Michelmore last month agreed to sell almost all of OZ Minerals’ assets to Minmetals to repay A$1.1 billion in debt after a rout in commodity prices. OZ Minerals is seeking to complete the sale by June 18, leaving Prominent Hill as its main asset.

State-owned Minmetals was blocked from buying Prominent Hill by Australian Treasurer Wayne in March because of its proximity to the Woomera weapons testing range. Woomera, about the size of England, is the largest land-locked missile-testing range in the world and previously included testing for nuclear weapons, according to its Web site.