AUSTRALIA OZL AU Price (at 08:20, 22 Jul 2016 GMT) Underperform A$6.51 Valuation A$ - DCF (WACC 9.0%, beta 1.4, ERP 5.0%, RFR 3.3%) 4.31 12-month target A$ 5.00 12-month TSR % -21.4 Volatility Index High GICS sector Materials Market cap A$m 1,967 30-day avg turnover A$m 13.2 Number shares on issue m 302.2 Investment fundamentals Year end 31 Dec 2015A 2016E 2017E 2018E Revenue m 879.4 813.8 813.5 731.3 EBIT m 186.8 133.5 164.2 72.7 Reported profit m 130.2 105.6 127.4 57.0 Adjusted profit m 130.2 105.6 127.4 57.0 Gross cashflow m 454.8 381.2 328.6 270.9 CFPS 149.9 125.0 107.8 88.9 CFPS growth % 19.2-16.6-13.8-17.6 PGCFPS x 4.3 5.2 6.0 7.3 PGCFPS rel x 0.39 0.45 0.60 0.80 EPS adj 42.9 34.7 41.8 18.7 EPS adj growth % 329.7-19.2 20.6-55.3 PER adj x 15.2 18.8 15.6 34.8 PER rel x 0.75 0.95 0.95 2.40 Total DPS 20.0 11.0 12.0 9.0 Total div yield % 3.1 1.7 1.8 1.4 Franking % 0 0 100 100 ROA % 7.5 5.2 6.4 2.8 ROE % 5.7 4.5 5.3 2.3 EV/EBITDA x 2.8 3.5 3.9 4.9 Net debt/equity % -23.6-25.3-14.9-3.2 P/BV x 0.8 0.8 0.8 0.8 OZL AU vs Small Ordinaries, & rec history Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period. Source: FactSet, Macquarie Research, July 2016 (all figures in AUD unless noted) On track to meet guidance Event OZL reported 2QCY16 production results. OZL notes that it remains on track to deliver on full-year guidance with gold production skewed towards 2HCY16. Impact Softer quarterly result but remains on track to meet its guidance: OZL reported total copper and gold production, of 27.35kt and 30.1koz, 7% and 8% below our forecasts, respectively. Based on YTD copper production of 58.4kt, OZL remains on track to deliver its guidance of 115-125kt of copper in CY16. Gold production recorded another weak quarterly result with respect to the guidance, but OZL expects gold volumes to increase in 2HCY16. Cash costs in line: 2QCY16 cash cost of USS$0.72/lb was 9% above our forecast given the weaker by-product production but in line with the guidance of US$0.70-0.80/lb. The strip ratio at the open pit declined to 0.8x as expected, and OZL also noted that it reduced underground mining costs by 20% QoQ as the development of the second decline continues. Cash and revenue in line: Net revenue of ~A$400m (~25% from gold sales) was broadly in line with our estimate (Macq A$412m) with ending cash at bank of A$574m also in line (Macq A$564m). Earnings and target price revision Changes to our production forecasts reduce our FY16-18E EPS by 3-8%. No change to price target. Price catalyst 12-month price target: A$5.00 based on a 50/50 Blend of NPV and 5.0x EV/Ebitda methodology. Catalyst: OZL reports half year results on 25 August. Action and recommendation Maintain Underperform: A softer result relative to our forecasts but we believe OZL remains on track to deliver full-year production and cost guidance. The improved performance of Prominent Hill remains positive as the open pit winds down, but news surrounding the development of Carrapateena represents the key catalyst for OZL, in our view. We remain bearish on the decision to develop Carrapateena on a stand-alone basis given that on our copper price forecasts the project does not generate a return that materially exceeds the company's cost of capital, commits and gears the balance sheet with only a margin NPV, and takes ~15 years to pay back the capital investment. 22 July 2016 Macquarie Securities (Australia) Limited Please refer to page 4 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures.
Macquarie Wealth Management Fig 1 OZL summary financials OZ Minerals ASX: OZL Price: (A$ps) 6.51 Year end: Dec Rating: Underperform Up/dn TSR Mkt cap: (A$m) 1,976 Diluted shares (m) 303.5 Target: 5.00-23% -22% ASSUMPTIONS CY13 CY14 CY15 CY16e CY17e CY18e CY19e CY20e ATTRIBUTABLE MINE OUTPUT CY13 CY14 CY15 CY16e CY17e CY18e CY19e Exchange Rate A$/US$ 0.97 0.90 0.75 0.74 0.73 0.73 0.74 0.74 Copper Production (kt) Copper (US$/lb) 3.32 3.11 2.50 2.13 2.17 2.14 2.12 2.42 Prominent Hill kt 73.4 92.6 130.3 116.9 108.7 87.8 64.8 Gold (US$/oz) 1,411 1,266 1,160 1,266 1,319 1,369 1,367 1,373 Carrapateena kt 0.0 0.0 0.0 0.0 0.0 0.0 20.2 Total copper production kt 73.4 92.6 130.3 116.9 108.7 87.8 85.0 RATIO ANALYSIS CY13 CY14 CY15 CY16e CY17e CY18e CY19e CY20e Gold Production (koz) Diluted share capital m 303.3 303.5 303.4 304.8 304.8 304.8 304.8 304.8 Prominent Hill koz 128.0 148.2 113.0 129.5 126.0 142.0 154.6 EPS (diluted and pre sig. items) A -20.6 10.0 42.9 34.7 41.8 18.7-10.9 21.5 Carrapateena koz 0.0 0.0 0.0 0.0 0.0 0.0 22.8 P/E x -31.6x 65.2x 15.2x 18.8x 15.6x 34.8x -59.9x 30.3x Total gold production koz 128.0 148.2 113.0 129.5 126.0 142.0 177.5 CFPS A 59.0 73.0 156.9 115.6 105.0 81.3 59.7 133.0 Cash costs (US$/lb) P/CF x 11.0x 8.9x 4.1x 5.6x 6.2x 8.0x 10.9x 4.9x Prominent Hill (US$/lb) 1.79 0.91 0.70 0.74 0.81 0.78 0.91 DPS 20.0 10.0 20.0 11.0 12.0 9.0 2.0 19.0 Carapateena (US$/lb) 0.77 Dividend yield % 3.1% 1.5% 3.1% 1.7% 1.8% 1.4% 0.3% 2.9% Average cash costs (US$/lb) 1.79 0.91 0.70 0.74 0.81 0.78 0.88 Franking Level % 0% 0% 0% 0% 100% 100% 100% 100% AISC (US$/lb) Book value per share x 7.67 7.41 7.72 7.81 8.11 8.19 8.03 8.17 Prominent Hill (US$/lb) 4.38 2.57 1.48 1.33 1.36 1.30 1.58 P/Book value x 0.8x 0.9x 0.8x 0.8x 0.8x 0.8x 0.8x 0.8x Carrapateena (US$/lb) 1.07 R.O.E. (pre sig items) % -13% 2% 6% 4% 5% 2% -1% 3% Average AISC (US$/lb) 4.38 2.57 1.48 1.33 1.36 1.30 1.46 R.O.A. (pre sig items) % -4% 2% 7% 5% 6% 3% -1% 3% Interest Cover x 14.7x -12.5x -64.4x -11.9x -15.8x -13.3x -6.6x 76.7x OPERATIONAL OUTLOOK EBITDA per share A$ps 0.38 1.12 1.56 1.30 1.15 0.89 0.71 1.35 EV/EBITDA x 13.9x 5.2x 3.0x 3.5x 4.6x 7.0x 9.7x 4.4x (kt) Prominent Hill Carrapateena Cash costs (US$/lb) 140.0 2.00 1.80 EARNINGS CY13 CY14 CY15 CY16e CY17e CY18e CY19e CY20e 120.0 1.60 Sales Revenue A$m 644 831 879 814 814 731 739 1,065 Other Revenue A$m 2 0 0 0 0 0 0 0 100.0 1.40 Total Revenue A$m 646 831 879 814 814 731 739 1,065 80.0 1.20 1.00 Operating Costs A$m (406) (395) (314) (380) (428) (424) (486) (615) 60.0 0.80 Operational EBITDA A$m 240 436 566 434 386 307 253 450 Exploration Expense/Write-offs A$m (75) (55) (40) (14) (15) (16) (16) (16) 40.0 0.60 Corporate & Other Costs A$m (49) (40) (54) (25) (20) (21) (21) (22) 0.40 20.0 EBITDA A$m 116 341 472 395 350 271 215 411 0.20 D&A A$m (219) (296) (285) (262) (186) (198) (255) (321) 0.0 0.00 EBIT A$m (103) 45 187 133 164 73 (39) 91 Net Interest A$m 7 4 3 11 10 5 (6) (1) Significant Items A$m (232) 18 0 0 0 0 0 0 RESERVES AND RESOURCES Profit Before Tax A$m (328) 67 190 145 175 78 (45) 90 Copper Tax Expense A$m 33 (18) (60) (39) (47) (21) 12 (24) Reserves Mt Cu (%) kt Minorities A$m 0 0 0 0 0 0 0 0 Prominent Hill 73 0.99% 720 Reported NPAT A$m (294) 48 130 106 127 57 (33) 65 Carrapateena 270 0.93% 2,500 Significant Items A$m (232) 18 0 0 0 0 0 0 Total 343 0.94% 3,220 Adjusted NPAT A$m (63) 30 130 106 127 57 (33) 65 Copper Resources Mt Cu (%) kt CASHFLOW CY13 CY14 CY15 CY16e CY17e CY18e CY19e CY20e Prominent Hill 153 1.16% 1,780 Net Profit A$m (63) 30 130 106 127 57 (33) 65 Carrapateena 800 0.79% 6,300 Interest/Tax/D&A A$m 194 315 347 301 194 172 221 357 Khamsin 202 0.54% 1,100 Working Capital/other A$m 48 (123) (1) (54) (1) 19 (6) (17) Total 1,155 0.79% 9,180 Net Operating Cashflow A$m 179 222 476 352 320 248 182 405 Gold Capex A$m (391) (326) (251) (228) (525) (502) (356) (126) Reserves Mt Au (g/t) koz Investments A$m 3 0 127 0 0 0 0 0 Prominent Hill 14 0.51 230 Sale of PPE and Other A$m 0 15 1 0 0 0 0 0 Carrapateena 270 0.40 3,500 Free cash flow A$m (210) (89) 352 125 (205) (254) (174) 279 Total 284 0.41 3,730 Dividends Paid A$m (91) (61) (18) (61) (36) (33) (15) (24) Gold Debt A$m 0 0 0 0 0 0 150 (150) Resources Mt Au (g/t) koz Equity Issuance A$m 0 (0) (3) (7) 0 0 0 0 Prominent Hill 27 1.27 1,100 Other A$m 6 4 3 (7) 8 (2) (0) 0 Carrapateena 800 0.33 8,400 Net Financing Cashflow A$m (85) (57) (18) (75) (28) (35) 135 (174) Khamsin 202 0.14 900 Net change in cash A$m (295) (146) 334 50 (234) (289) (39) 105 Total 827 0.36 9,500 BALANCE SHEET CY13 CY14 CY15 CY16e CY17e CY18e CY19e CY20e EQUITY DCF VALUATION Cash A$m 364 219 553 602 368 80 41 146 Projects A$m A$ps PP&E & Mine Development A$m 1,305 1,332 1,262 1,228 1,567 1,871 1,972 1,778 Prominent Hill 564 1.86 Other A$m 848 858 752 690 697 650 804 957 Prominent Hill Resources 28 0.09 Total Assets A$m 2,517 2,409 2,566 2,520 2,632 2,601 2,817 2,880 Carrapateena 184 0.61 Debt A$m 0 0 0 0 0 0 150 0 Carrapateena Resources 35 0.11 Total Liabilities A$m 189 160 223 138 159 104 368 391 Listed investments 29 0.09 Total Net Assets / Equity A$m 2,328 2,249 2,344 2,382 2,473 2,497 2,448 2,490 Exploration 0 0.00 Net Debt / (Cash) A$m (364) (219) (553) (602) (368) (80) 109 (146) Corporate (134) (0.44) Gearing (net debt/(nd + equity)) % (19%) (11%) (31%) (34%) (17%) (3%) 4% (6%) Net cash (debt) 602 1.98 Gearing (net debt/equity) % (16%) (10%) (24%) (25%) (15%) (3%) 4% (6%) Net Equity Value (@ 9.0% WACC) 1,308 4.31 Price Target (50/50 Blend of 5.0x EV/Ebitda and NPV) (1x NPV) 5.00 Source: OZL, Macquarie Research, July 2016 22 July 2016 2
Fundamentals Macquarie Wealth Management Macquarie Quant View The quant model currently holds a strong positive view on. The strongest style exposure is Valuations, indicating this stock is underpriced in the market relative to its peers. The weakest style exposure is Profitability, indicating this stock is not efficiently converting investments to earnings; proxied by ratios like ROE or ROA. 34/1119 Global rank in Materials % of BUY recommendations 22% (4/18) Number of Price Target downgrades 3 Number of Price Target upgrades 8 Attractive Quant Local market rank Global sector rank Displays where the company s ranked based on the fundamental consensus Price Target and Macquarie s Quantitative Alpha model. Two rankings: Local market (Australia & NZ) and Global sector (Materials) Macquarie Alpha Model ranking A list of comparable companies and their Macquarie Alpha model score (higher is better). Factors driving the Alpha Model For the comparable firms this chart shows the key underlying styles and their contribution to the current overall Alpha score. 1.6 1.2 0.6 0.1-0.1-0.5-3.0-2.0-1.0 0.0 1.0 2.0 3.0-100% -80% -60% -40% -20% 0% 20% 40% 60% 80% 100% Valuations Growth Profitability Earnings Momentum Price Momentum Quality Macquarie Earnings Sentiment Indicator The Macquarie Sentiment Indicator is an enhanced earnings revisions signal that favours analysts who have more timely and higher conviction revisions. Current score shown below. Drivers of Stock Return Breakdown of 1 year total return (local currency) into returns from dividends, changes in forward earnings estimates and the resulting change in earnings multiple. 0.3 NaN 0.5 0.1-0.1-0.2-3.0-2.0-1.0 0.0 1.0 2.0 3.0-100% -50% 0% 50% 100% Dividend Return Multiple Return Earnings Outlook 1Yr Total Return What drove this Company in the last 5 years Which factor score has had the greatest correlation with the company s returns over the last 5 years. Price to Cash FY1 Price to Book NTM Price to Book FY1 Price to Book LTM Earnings Certainty Earnings Certainty (NTM) Turnover(USD) 125 Day Merton Score -25% -26% -30% -30% Negatives Positives 37% -40% -20% 0% 20% 40% How it looks on the Alpha model A more granular view of the underlying style scores that drive the alpha (higher is better) and the percentile rank relative to the sector and market. Alpha Model Score Valuation Growth Profitability Earnings Momentum Price Momentum Quality Capital & Funding Liquidity Risk Technicals & Trading Normalized Score 1.56 0.98 0.59-0.30 0.56 0.68-0.09 0.12-0.63-0.18 0.91 Percentile relative to sector(/1119) Percentile relative to market(/398) 0 50 100 0 50 100 0 0 1 1 Source (all charts): FactSet, Thomson Reuters, and Macquarie Research. For more details on the Macquarie Alpha model or for more customised analysis and screens, please contact the Macquarie Global Quantitative/Custom Products Group (cpg@macquarie.com) 22 July 2016 3
Macquarie Wealth Management Important disclosures: Recommendation definitions Macquarie - Australia/New Zealand Outperform return >3% in excess of benchmark return Neutral return within 3% of benchmark return Underperform return >3% below benchmark return Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield Macquarie Asia/Europe Outperform expected return >+10% Neutral expected return from -10% to +10% Underperform expected return <-10% Macquarie South Africa Outperform expected return >+10% Neutral expected return from -10% to +10% Underperform expected return <-10% Macquarie - Canada Outperform return >5% in excess of benchmark return Neutral return within 5% of benchmark return Underperform return >5% below benchmark return Macquarie - USA Outperform (Buy) return >5% in excess of Russell 3000 index return Neutral (Hold) return within 5% of Russell 3000 index return Underperform (Sell) return >5% below Russell 3000 index return Volatility index definition* This is calculated from the volatility of historical price movements. Very high highest risk Stock should be expected to move up or down 60 100% in a year investors should be aware this stock is highly speculative. High stock should be expected to move up or down at least 40 60% in a year investors should be aware this stock could be speculative. Medium stock should be expected to move up or down at least 30 40% in a year. Low medium stock should be expected to move up or down at least 25 30% in a year. Low stock should be expected to move up or down at least 15 25% in a year. * Applicable to Asia/Australian/NZ/Canada stocks only Recommendations 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations Financial definitions All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards). Recommendation proportions For quarter ending 30 June 2016 AU/NZ Asia RSA USA CA EUR Outperform 45.17% 56.00% 36.36% 43.16% 63.39% 45.91% (for global coverage by Macquarie, 6.27% of stocks followed are investment banking clients) Neutral 36.21% 28.59% 40.26% 50.38% 29.46% 36.96% (for global coverage by Macquarie, 6. of stocks followed are investment banking clients) Underperform 18.62% 15.41% 23.38% 6.46% 7.14% 17.12% (for global coverage by Macquarie, 5.38% of stocks followed are investment banking clients) OZL AU vs Small Ordinaries, & rec history (all figures in AUD currency unless noted) Note: Recommendation timeline if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period. Source: FactSet, Macquarie Research, July 2016 12-month target price methodology OZL AU: A$5.00 based on a 50/50 Blend of NPV and 5.0x EV/Ebitda methodology Company-specific disclosures: OZL AU: Macquarie and its affiliates collectively and beneficially own or control 1% or more of any class of Limited's equity securities. MACQUARIE CAPITAL (AUSTRALIA) LIMITED or one of its affiliates managed or co-managed a public offering of securities of OZ Minerals Ltd in the past 24 months, for which it received compensation. Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/research/disclosures. Date Stock Code (BBG code) Recommendation Target Price 19-Jul-2016 OZL AU Underperform A$5.00 06-Jul-2016 OZL AU Underperform A$5.30 15-Jun-2016 OZL AU Underperform A$4.60 19-May-2016 OZL AU Underperform A$4.70 21-Apr-2016 OZL AU Underperform A$4.60 19-Apr-2016 OZL AU Underperform A$4.30 15-Mar-2016 OZL AU Underperform A$4.50 26-Feb-2016 OZL AU Neutral A$4.80 10-Feb-2016 OZL AU Neutral A$4.60 21-Jan-2016 OZL AU Neutral A$4.30 14-Dec-2015 OZL AU Underperform A$4.00 23-Oct-2015 OZL AU Outperform A$6.00 06-Oct-2015 OZL AU Outperform A$5.50 24-Sep-2015 OZL AU Outperform A$4.60 24-Jul-2015 OZL AU Outperform A$4.30 16-Jul-2015 OZL AU Outperform A$4.40 13-May-2015 OZL AU Outperform A$5.10 20-Mar-2015 OZL AU Outperform A$5.30 11-Feb-2015 OZL AU Neutral A$4.30 28-Jan-2015 OZL AU Outperform A$4.90 15-Jan-2015 OZL AU Outperform A$4.10 22 July 2016 4
This publication was disseminated on 22 July 2016 at 11:42 UTC. Macquarie Wealth Management 14-Oct-2014 OZL AU Neutral A$4.00 03-Jun-2014 OZL AU Underperform A$3.80 16-May-2014 OZL AU Outperform A$4.40 16-Jan-2014 OZL AU Outperform A$4.50 11-Dec-2013 OZL AU Underperform A$3.00 15-Aug-2013 OZL AU Underperform A$4.00 Target price risk disclosures: OZL AU: Any inability to compete successfully in their markets may harm the business. This could be a result of many factors which may include geographic mix and introduction of improved products or service offerings by competitors. The results of operations may be materially affected by global economic conditions generally, including conditions in financial markets. The company is exposed to market risks, such as changes in interest rates, foreign exchange rates and input prices. From time to time, the company will enter into transactions, including transactions in derivative instruments, to manage certain of these exposures. Analyst certification: We hereby certify that all of the views expressed in this report accurately reflect our personal views about the subject company or companies and its or their securities. We also certify that no part of our compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. The Analysts responsible for preparing this report receive compensation from Macquarie that is based upon various factors including Macquarie Group Limited (MGL) total revenues, a portion of which are generated by Macquarie Group s Investment Banking activities. General disclosure: This research has been issued by Macquarie Securities (Australia) Limited ABN 58 002 832 126, AFSL 238947, a Participant of the ASX and Chi-X Australia Pty Limited. This research is distributed in Australia by Macquarie Wealth Management, a division of Macquarie Equities Limited ABN 41 002 574 923 AFSL 237504 ("MEL"), a Participant of the ASX, and in New Zealand by Macquarie Equities New Zealand Limited ( MENZ ) an NZX Firm. Macquarie Private Wealth s services in New Zealand are provided by MENZ. Macquarie Bank Limited (ABN 46 008 583 542, AFSL No. 237502) ( MBL ) is a company incorporated in Australia and authorised under the Banking Act 1959 (Australia) to conduct banking business in Australia. None of MBL, MGL or MENZ is registered as a bank in New Zealand by the Reserve Bank of New Zealand under the Reserve Bank of New Zealand Act 1989. Apart from Macquarie Bank Limited ABN 46 008 583 542 (MBL), any MGL subsidiary noted in this research,, is not an authorised deposit-taking institution for the purposes of the Banking Act 1959 (Australia) and that subsidiary s obligations do not represent deposits or other liabilities of MBL. 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