Direct from the Desk: A deep dive into Oz Minerals

In the fourth episode of 'Direct from the Desk' I'm joined by Senior Analyst Peter O'Connor to take a deep dive into Australia's no 1 copper stock, Oz Minerals (ASX:OZL). 

Oz is Australia's premier copper focused miner with a global footprint. It generates the bulk of its earnings from copper while also enjoying the benefit of gold credits along the way. Since 2015/16 OZL has transitioned from a miner with short-duration assets, to a company that will be producing for decades. 

It's had a stellar run in the last twelve months, up over 145%, enjoying the copper price tailwind along with a re-rating by the market around the company's longer term prospects. 

This podcast discusses: 

• The current copper price & outlook
• What the macro-environment means for copper prices 
• Valuation and outlook for Oz Minerals 
• Why it's the No 1 growth company under Peter's coverage 
• Two smaller names in the copper space that could offer a bigger bang for buck

In episode 1 we looked at small-cap consumer finance business Wisr (ASX:WZR), in episode 2 we discussed software business Altium (ASX: ALU) which has since attracted a takeover bid and in episode 3 our stock in the spotlight was shipbuilding company Austal (ASX:ASB). 

Want to get an SMS message when we buy Oz Minerals? 

While we don't currently own Oz Minerals (OZL) having taken profits on our last position, we are looking to re-enter at levels that represent better risk/reward. To get an SMS message when we enter, click here to take a free trial today.

Edited Transcript

Hello and welcome to Direct From the Desk, produced by Market Matters, a podcast that takes a deeper dive into a stock, a sector, a theme, or an event that we think you should be across. I'm James Gerrish, portfolio manager at Shaw and Partners, and the author of online investment site, marketmatters.com.au. We run real portfolios. We invest in them. We write about our views, experiences, and our portfolio decisions. To take a free 14-day trial of Market Matters, visit marketmatters.com.au.

Today's podcast is the fourth in a six-part series doing a deeper dive into six stocks that we like, we either own or are looking to buy them. Before we crack on to today's episode, it will be remiss of me not to remind listeners that any advice provided today is of a general nature only.

Australia's premier large-cap copper stock is the fourth company we're covering in this series. Following consumer business, Wisr, in episode one, software business, Altium, in episode two, that's now under takeover, and shipbuilder, Austal, in episode three. And to join me this week on the journey is a well-known contributor to Market Matters, senior analyst at Shaw and Partners, Peter O'Connor. Peter, thanks for joining me.

Peter O'Connor:

Thank you, James. Great to be here.

James Gerrish:

Now, I just want to start with an overview of the OZ Minerals. Perhaps people who are not familiar with it are listening to the podcast. Obviously, they're a copper stock. There's copper in the ground. They dig it out. They hopefully sell it for more than the cost of digging it out. Can you give us an overview of OZ as a company?

Peter O'Connor:

Sure. So to be clear, they are a copper-focused company and that's important because some companies deviate and move around, but they're copper-focused. They've also got a global copper focus, so it's not just Australia. They have three operations at the moment, two in Australia and one in Brazil. And when I talk about growth later, that will come into play. Production profile today is about 130,000 tonnes of copper and about 200,000 ounces of gold, so they're quite significant in the gold space as well. Their costs are low. On a cash cost basis, they're about 80 cents per pound US, which is right down the bottom end of the curve. An all-in cost basis, they're about $1.35. So, they're well-placed, and as I mentioned, gold's a part of their businesses as well and it accounts for about 20% of the revenue today, but key thing, copper focus, global business and well-run and growing.

James Gerrish:

So, commodity stocks follow their underlying commodity prices pretty closely. You just touched on all-in sustaining costs of about $1.30 a pound. To give listeners an idea of the backdrop of copper prices, in May of 2020, they got down to about $2. They've rallied up to around 500 a pound or just shy of $5 a pound, I should say. And they're now back about 10% off their highs. Obviously, a commodity price tailwind is important, but if you overlay that on OZ's share price, it's rallied from sort of six bucks up to 27 and is now back 10% off its highs. Can you give some understanding of the tailwind that's provided them?

Peter O'Connor:

So, a little bit more background, I think is worthwhile. So OZ Minerals, it's a $3 stock five years ago, to a $25 stock today. And you'd sit here and go, "Is it just copper price?" And a large part of it is and given there's a 95% correlation of commodity stock to the commodity price, that's part of it, but they've also done a lot in growth, which we'll come to, but the key driver is copper prices, as you mentioned $2 a pound not so long ago, about a year ago. Today, touching five, back at about $4.50. They make a large margin. Just to give you a sense, today at the spot copper price versus their current all-in costs, so everything, about a billion dollars, not quite a billion, but about a billion dollars they make. So, they're generating a lot of income with what they've got at the current price, but even back at a price which we all think is the long-term average price, about $3, $3.25, they still make a substantial margin at their current cost structure.

James Gerrish:

So, it's the leverage you get in these commodity businesses. They obviously model their production profile, model their cost base off lower realised prices than we're achieving today. And that's why the leverage is so significant in them. And that's why you see so significant upside in share prices from sort of 6 to $25.

Peter O'Connor:

Correct. And the benefit they've also had with copper is gold and gold is a credit to their costs. So, the higher gold price goes, the lower their costs are as well. So, gold was $1,500 not so long ago. It's now $1,900 today. That has a big bearing on their cost. So, it's about 20% of their revenue. That's a big credit to your cost. So, one of the benefits of having that diversity is they can mine slightly lower-grade, mine for longer, and they've got better income as well. So, that's something to keep at the back of your mind with gold sitting at the current level, that's very beneficial for the likes of an OZ that has the... Not all copper companies have that level of gold credit as well.

James Gerrish:

You spoke about the price coming from $3 up to 25, and it's not all just a tailwind around the commodity prices. Operationally, they've obviously done some good things to underpin such a big re-rating of the stock price.

Peter O'Connor:

Yeah. Again, history's really important because OZ Minerals had, keyword had, a history of disappointing and a lot of Australian mining companies. We've talked on this some forum before about, whether it's Fortescue, Whitehaven Coal, which is a recent one, Rio Tinto, BHP-

James Gerrish:

Newcrest.

Peter O'Connor:

Newcrest Mining. They've all had periods of disappointment and the Australian market, both retail and institutional, don't like that background. And they have what I term a pathological dislike for companies that disappoint. And when they do, it takes a long time to turn that around. So, that delivery can take a while.

The key point, the pivot or the inflexion was in the end of '14, 2015, new management team, which we'll talk about later, but that's important. And they've set this company on a trajectory, which is where it's gone from $3 to 25 so this is not just about luck.

What did they do? They took a mine which the market expected in 2015 to run out about now, 2022, 2024. So, that was the company. Six years' life, nothing more. They've taken it and made that asset which is going to run out next year, they've taken it out to 2032, and they've also added another mine, which nobody believed they could possibly build. A mine called Carrapateena. That's taken their business another leg up and adding the same sort of scale of production, but taking it out for 25 years, 30 years. And they've also bought a business in Brazil, which likewise could run for 10 or 15 years. So, they've got a lot of tail.

In fact, I started writing about four years ago that the business for OZ Minerals wasn't about five years, 10 years, 20 years, it was a multi-decade. And when I meant multi-decade, it wasn't two or three, it was 50 or more. They're in South Australia, a very copper-rich state with a very supportive government, with the potential to be there literally the whole of this century. And I don't make that statement lightly. So, it's got a very, very long tail. And so putting those pieces together, they've constructed a company which is a long-term copper-focused global business, which is generating, as I mentioned, a lot of cash today and will do for a very long time.

James Gerrish:

So, obviously, the copper price is important. We'll get back onto the company's production and how that is run very shortly, but copper prices, they've rallied a very long way. Obviously, the global economic backdrop has improved considerably coming out of COVID. We're underpinned by a huge amount of stimulus globally, low rates, the concept of reflation, inflation picking up. We're seeing that in bond yields that are ticking higher. What's the backdrop for copper prices in all of this? Obviously, we're known, we're taught as investors that the copper price is a barometer of global activity, economic activity, it's your bellwether. What's your outlook for copper prices here?

Peter O'Connor:

James, you're taking all my keywords, bellwether and barometer. They're the ones I use for steel and for freight and also for copper and oil. That's what's telling you what's happening in the economy. And the key is there's a lot of narratives around at the moment about cycles. What cycle are we in? The key point is we're in the liquidity phase, a very, very intense liquidity phase. That's the inflation you talked about.

So, as a recovery from COVID, we've had this massive stimulus, money printing globally, be it the US, China, elsewhere. So, that liquidity's driven demand and demand's ticked higher. And it's ticked higher over the last year. The confluence of that rising demand, liquidity-driven in the first instance, with supply disruptions because of COVID shutdowns in Latin America, a key producer of copper. About 35 to 40% of global copper comes out of Peru and Chile. COVID issues there creating headwinds to production in Africa last year in May, June, we had shutdowns as well. Across the globe, there have been curtailments in the supply chain, which has meant supply hasn't been quite there. So, prices squeezed higher and trying to incentivize... The keyword being incentivizing anybody who can get another ton of copper out to help us out. Over time, that pulse of stimulus starts to fade. We look at pulses, be it China funding or money printing, but that pulse of copper will go to a more normal growth level.

James Gerrish:

A pulse being freight rates is an interesting pulse. And I know you put a chart recently around freight rates coming off their peak. Obviously, the demand for freight has been really high. Is that a strong leading indicator for copper or is it just another slight incremental indication that we might be seeing a short-term peak in copper?

Peter O'Connor:

It's one of the many things you have to look at, so freight is a barometer for that activity, and more so at the bulk, the steel and the iron ore end, but it's also an indicator at the base metal end, but you've also got to look at kind of the nuances very short-term. As a copper smelter in China, the cost I'm paying to get material from Chile is leaving me with no margin. So, what's called a treatment and refining charge. That's how I make my money as a smelter. I'm getting almost nothing. It's the lowest level ever. So, I'm not getting a lot of income, so I'm going, "Why would I bother making more copper when I'm not making any money?" And that's not the only part. If they do make copper, when they go to sell that copper, the premium they get, what's called a physical premium for delivery, is now not even covering their cost to deliver. So, the copper smelter's been squeezed at both ends. And that's typically telling you, demand's not quite there to pull the price through. So, you're getting supply starting to recover and demand's looking like the pulse is just easing, and the China PMI data yesterday was still very strong, but the second derivative was directionally lower and that's cause for concern.

There are other issues such as scrap usage becomes easier to get in a non-COVID world because that was constrained. So, a lot of factors driving it higher, and $5 feels intuitively high and incentivizing. And again, is that people want to latch on and grab the woods. Supercycle describes it, but it really is about liquidity and how long that liquidity lasts. So copper will stay high for as long as that liquidity drives it and supply"s tight.

Saying that I'd thought it worth highlighting, short term, some key things we need to look at. One is the weekend. It still hasn't been concluded yet, but the Peruvian election. I mentioned Peru's about 10% of the global supply of copper. That's a big deal, and a very strong right candidate and a very strong left candidate. At the moment, it's too close to call the election. If the left candidate gets in, we could see nationalisation, we could see taxation, royalties, and there's potentially a lack of stability in supply come out of Peru. That's something we need to watch, shortish-term, but also Chile, major labour negotiations underway. There's been a lot of noise about little ones, but the big one is about to... It's literally just started. And it's the Escondida, the largest copper mine in the world. Makes about 1.2 million tonnes of copper in a 25 million tonne market. So it's a big deal and their labour negotiations, their contract ends in August. They're starting to talk now. Invariably, the next three months is going to be noise about strike, no strike, strike, no strike. And there could even be a strike and constrained supply. So, we need to watch that as well. It's just a short-term squeeze.

James Gerrish:

Yeah. So, all of the things you've spoken about, the government situation in Peru, strikes, et cetera, that's a negative for supply so a positive catalyst for prices in the very short term. I'm getting the feeling that we're looking at copper, it's run a very long way in a very short amount of time. It's a lot of positive economic undertones built into the price of copper. I understand the reflation trade is gaining momentum, but look at bond yields very closely on a daily basis. And you can start to see that even though the economic data is improving, things, prices of things, so bonds being one, commodity prices being another, the upside has started to wane a little bit. Is that your feeling? Are you looking for... We've come 10% off the top in copper. Are you looking for more downside or is now a time, given the short-term issues or potential issues around supply, that we should be going-

Peter O'Connor:

The key answer is I have to let the data determine the outcomes so whatever the data tells me, I go with it. I'm not bullish, I'm not bearish. It's just whatever the data is. So, is $5 copper price right? It is right now.

James Gerrish:

What are you pricing in as your copper assumptions?

Peter O'Connor:

Consensus copper price forecast, including our own, for a long-term price of about $3.23, 25, that's long term sort of 2.25. And for this year, numbers have been dragged high, but we invariably lag by about six months. And the numbers for this year are still probably around $4. So, there's still more upside for copper price forecast to rise, therefore earnings to rise. But I stress, they're a lagging indicator. So analyst forecasts, unfortunately, we don't lead. We lag.

So, a couple of other things to point out. One is speculative positions in copper, which are coincident with copper price. They've started to roll over and the longs are starting to become less so, and across the base metal complex as well. So that's just something to watch is where that marginal liquidity-driven speculative dollar has been, it's worth watching as well.

And another, I really need to see this as a graphic, but a great measure of copper as a barometer for activity versus inflation concerns, gold. If you look at the copper-to-gold ratio and compare that to the US 10-year yield, which you keep mentioning, that ratio has run too far. Copper has stretched well beyond what you would expect in a normal circumstance. So, it feels like copper, there are some speculative elements in there as there has been in iron ore as well, but right now, $5 is the right price. It feels like it's going to be lower longer. And not only that, we've got wet season earlier in China. Construction activity looks like it's peaked for the summer season. That's going to dial back copper. That PMI number I mentioned is a little bit softer and that pulse may just start to dial back a little bit. So, it's still a very strong outlook with great economic numbers year on year. But if that second derivative eases, we're basically probably seeing our highest print for the price.

James Gerrish:

So what's your call on OZ at the moment?

Peter O'Connor:

I have a buy call and it's right near my target price. So, I look at that. I go, "Great." It did what I thought it would do. It's not looking cheap. And I just want to just... OZ is one of the highest-quality companies that I cover, in terms of that story I put together about its growth and how they've set up this business. If I was looking at a long-term company I'd like to buy, that's one, but is it cheap? No. So, it's trading on my numbers at about 1.3, 1.4 times its fair value. And that's fine, in an environment where you have a tailwind like we've had in iron ore with Fortescue. Companies trade at a premium, and gold stocks did this last year when gold price was peaking. Iron ore is doing it right now, and that can last there, as long as that pulse of price stays.

So, until you think $5 copper price, which is now 4.50, is done, OZ could hold this mid-twenties level. So, typically stocks in this area can trade at one-and-a-half times their fair value, maybe even more in a really strong demand pulse. So, I'd say $30 is not out of the question if we got another pulse from strike activity in Peru or Peruvian election outcome, but 25, you're not buying a cheap stock. Just want to make it very, very clear. You were buying value at $3 in 2015, you were buying value at $10 in March last year. You're not buying value. You're buying a fantastic company with momentum and you've got to differentiate value versus momentum. If you're happy to buy in momentum phase, that's fine, but that then needs to... You need to watch very closely what's happening day-to-day in the copper market.

James Gerrish:

So, commodities are cyclical, in so far as the price incentivizes new production to come on-stream. So, it begs the question, how much new production can global copper production in any meaningful scale can come on-stream over the next coming years? Is the market constrained or is high price incentivize new mine development?

Peter O'Connor:

I love this because the easiest narratives a player in the market uses are the ones they have no idea about. They just use them because everybody hears the same thing and they just go, "Oh, yeah, great. Copper's in short supply. Why? Because grades declining and strip ratio's going up." Nobody really has a clue what they're talking about. Same as when they talk about a supercycle, I don't think anybody really understands what they're talking about.

Now, I'm being facetious. But the copper market will be tight at times and not at others. Over the next three years, it's expected the copper market will be in surplus. Aside from this demand pulse, copper should be in '22, '23, '24, likely in a slight supply surplus, as new mines are coming on in Latin America as well as in Africa and in Australia, and BHP alone is bringing on 300,000 tons of copper, and they're very happy to tell the whole world that, over the next two to three years.

So, the copper market, in terms of mine supply, is about 18 million tons. Grows at about 3% per annum. That's about 500,000 tons of new copper per year. BHP can do... their next growth phase, that's half a year's supply. That's one mine, one company. So, copper suppliers traditionally, other than short squeezes or periods of one or two year squeezes has typically caught up. Why? Because everybody's drilling the world for copper because copper's one of the easiest commodities to find, along with gold. Newcrest, Rio, BHP, Glencore, they're all looking for copper. So, copper's likely to have pinches like now. There may be another EV-related one, which everybody's trying to pin it down to now in 2025. Right now, supply and prices incentivize producers to look everywhere in the world. And how many new companies want to be in copper at the moment? Not least we've got an IPO that just came out literally yesterday in Australia. So, I think you'll find supply has traditionally kept pace, albeit, at times, it does fall behind, like right now that demand pulse is greater than supply availability.

James Gerrish:

You made mention of the big guys, BHP, Rio, Glencore, et cetera. What does the copper market look like in Australia? Obviously, OZ is the premier, you say pure-play or focused copper stock in Australia. What are the other names in the space that we should be looking at that haven't had the rally that OZ has had?

Peter O'Connor:

It's fascinating. Copper should be much more represented in Australia, given it's such an important commodity globally. And it's really, we've become a market about iron ore, iron ore and gold, and copper should be a bigger part, but give you some numbers to give you some context. So, Australia produces just short of a million tons of copper a year. I don't think anybody really thinks that because you really think about is OZ doing 100, Sandfire doing 75, but coming out here and there, probably a couple hundred, but it's nearly a million. Glencore does stuff out of Mt. Isa, there's stuff coming out of South Australia with BHP, stuff coming out of WA. And there's a lot of by-product copper as well. Newcrest, they're a producer of 140,000 tons of copper as a by-product. So the flip side of what OZ does, they're a gold company with a copper credit. So, their Cadia mine and their Telfer mine do a lot of copper. Evolution Mining, their Ernest Henry operation in Queensland, that's also a very big copper by-product. They do about 25 to 40,000 tons of copper a year.

So, the spectrum goes from BHP, global operations, 200,000 tons in Australia. They do about 1.6 million tons globally, of which 200's out of Australia. Rio has none in Australia, but globally about 600,000 tons. Then as you mentioned, you get to OZ, which at the moment's about 130,000 tons of copper. And I'll talk about the growth a little while, but it's going substantially higher. Sandfire, and then there's a lot of like nothing. It's just like a chasm of... We need more copper players. And to that point there, a couple I just wanted to highlight that look interesting.

Aeris, which is AIS, I think is the ticker. Aeris were a copper company with a very high-cost copper mine. They bought a gold mine off Evolution last year. And they're getting a lot of airtime at the moment with what they're doing, and in markets where you're buying cyclicality and leverage, you want to buy the high-cost producer. Why? Because that leverage, that dollar leverage is so much more extreme. So, Aeris has been getting a lot of airtime.

But the one I wanted to plant the seed today was a company called Cyprium. Ticker is CYM. It's the copper asset which used to be owned by a company called Metals X, MLX was the ticker. They sold that this year to CYM and CYM were interesting. So, the pedigree of this company's what's key. The management team have basically all come from a company called Finders Resources, which had a copper asset in Indonesia. And prior to that, they ran a lead-zinc-copper asset in Western Australia called Jabiru, a listed company. In both cases, they were taken over. In both cases, they were successful. In both cases, they operated very, very well. That team's now doing Cyprium. And they're basically saying, "Yep, everybody's owned this mine before. It's had too much trouble. Let's just run it as a what we do well," which is what they call SX-EW or treatment. So, I'd watch that space closely because they will potentially do things alternatively much, much better. And that could be a winner of a copper stock.

James Gerrish:

Sounds interesting. Now, to go back onto OZ and you made mention of OZ Minerals' growth profile moving forward. How does that evolve over time? Obviously, they're putting money into the ground. They've got Carrapateena, which is obviously their growth project that the market really didn't give them any kudos for a year or so ago. What's their growth profile from here and how much copper can they mine going forward?

Peter O'Connor:

So, this is the silver bullet, James, this is the OZ Minerals. This is the package. So, OZ as a growth company. So it's cyclical. So, all the commodity companies are cyclical. They follow the economic cycle, but if I could call it a growth cyclical, so it's got a growth trajectory, but a cycle around that. So, we're going to have times to buy it, times to sell it, but ultimately it's a growth company. So where it was $3 before and probably traded three to $10. Now, it's probably a 25 to $14 type company. So, what's driven that uplift? It's growth. And what have they done? As you mentioned, an initial asset when they were a billion-dollar market cap, they had this mine which had six years' life. That's now got another 12 years' life, despite the fact it only had six years, six years ago. That basically accounts for twice the value of the market cap back then.

Carrapateena today, which they've commissioned over the last few years, which the market, even three years ago, gave them zero value for. That's now worth two and a half billion dollars value to the company.

What they bought in Brazil for 500 million. Everybody went, "Oh, Brazil, what are you doing in Brazil? These crappy little rat-hole mines." That on numbers that they're looking at delivering could be worth twice that as well.

But the real winner is an asset called West Musgrave. They picked it up through a company called Cassini Resources last year. They were a JV partner. They took it through steps to get it to a pre-feasibility study stage. At that point, they bid for the company and they picked up the company for an implied value of the project of 100, $200 million. The NPV of that product now they've done a feasibility is over a billion dollars. So, talk about value uplift. The company delivering growth and value uplift to shareholders. So that one's, that's like a five-bagger in that one asset. So, growth comes from those assets.

What does it mean in simple terms? Between now and 2025, on a five-year view, their production profile, all things equal, grows at about 16, 16% per annum, compounded. Context, BHP and Rio, 1% per annum compound. Australian gold sector, top five growth at this stage, five to 6% per annum compound. 16% is a huge number in the context of resource companies. And that's not driven by copper price this year. That's driven by underlying growth.

James Gerrish:

So, it's doubling production over five years basically.

Peter O'Connor:

Basically, going from today's 130 to 250,000 tons of what I call copper-equivalent units. I just make that nuance because some of that growth will be in nickel because of this new project, but that's what they've delivered. So, systematic, mechanical, methodical process of taking what they've got and understanding it, extending the life of existing assets, delivering an asset nobody believed, buying an asset nobody believed in, incredibly cheap. Like I said, a five-times uplift in value already, and they have got a lot of capex in front. So, between now and 2025 to deliver Carrapateena expansion, as well as this new mine at West Musgrave, that's going to consume at least a billion to $2 billion, depending on which way they do it and how much sequential or overlap there is. They've got the cash flow to do it, but they will have lower free cash. But to fund that type of growth, I'm happy to reinvest. That's great recycling of capital. So five-year view, it's probably the... Not probably. It's the best compound growth of any company that I cover.

James Gerrish:

You spoke a lot about the delivery on the generating uplift on assets that perhaps other management teams couldn't generate an uplift in or couldn't generate the economics out of that particular asset. Obviously, comes down to management and execution. You leverage your management team, you leverage your ability to deliver. So, talk about management in that regard. You've obviously alluded to it being since '15, '16, when new management came on board, that that's been the turning point for this company to really transform it into, as you say, the best growth business under your coverage. Talk about management for us.

Peter O'Connor:

Management are benchmark first-class. So, I'm not going to say they're the best, but the CEO's probably one of the top five in Australia. I'd like to think, is he closer to the bottom of that top five? I.E. Number one, but he's excellent in what he has done and his pedigree's important, so he's ex-Rio Tinto. And two of the other people in that list that I would admire would be the CEO of Newcrest, Sandeep Biswas, and also the former CEO of St Barbara, Bob Vassie.

James Gerrish:

They've all transformed difficult assets

Peter O'Connor:

They've been transformational, difficult assets that the market hated at the time. St Barbara, 7 cents to a couple of dollars a share. Newcrest from $8 going out backwards and needing an equity issue to nearly got to $40 and going higher. And this one, $3.25. Not one of those is by luck. And if you looked at those three characters, they're so different, what is it about them? It's the DNA they picked up from Rio, and it's how to methodically, systematically process and just understand. And I used the term before, let the data inform the decision. That's exactly what they do. So, they don't overanalyze. That's not analysis-paralysis, but you know everything they do, they've thought about. And I've got to say, if I ever get a directorship, I'd love to be at OZ Minerals, because as a CEO taking things to the board, as a director, I'd be going, "Wow, this stuff has been so well-analysed." Not that I wouldn't look at it and check it, but everything they get to take in to make the approval on it looks robust.

So, it's been about systems, process, analysis, delivery, and understanding, letting data drive outcomes, and just revisiting things which looked really obvious and incredibly strong-willed and forthright and delivering. And over that period of time, the market's taken probably the first three to four years just to work that out. And now they're finally got it.

Can I give you a great anecdote? This is one of my favourite. First-year into his job, we had a site visit with OZ Minerals and we're in South Australia near the Carrapateena mine, at an Indian restaurant, of all things, apparently the best in the Southern Hemisphere. At the dinner that night, as you do at these functions, everybody wants to sit next to management and talk to them and pick their brains. We all get our food from the Indian buffet, and we sat down, and nobody sat with the CEO.

James Gerrish:

Sounds dangerous, the Indian buffet.

Peter O'Connor:

Nobody sat with the CEO. So, I sat down with the CEO and I had two hours with the CEO because nobody else wanted to talk to him. I have no idea what they were thinking. And that was one of the great moments I had, where I just got to pick his brains, understand how he's thinking, and get a sense of where he's taking the company, and then watching him since. So, I don't want to overstate his position in the company, but the systems and the processes he's put in place. And what I hear from people who work for him, how much they admire that process. That gives me confidence because it's not about one person. He's created systems which are sustainable.

James Gerrish:

All right. So, I'm getting a very, very positive tone around what OZ Minerals has delivered and what the outlook for the company is going forward, underpinned by a really strong management team. It comes down to valuation from an investment standpoint. We've talked about copper rallying from lows to reasonably elevated levels. OZ Minerals has done a very... an amplified version of that move. Valuation, fair value at the moment, slightly elevated. I mean, you said it's around about your target price. You've still got a buy on it, so it's not cheap.

Peter O'Connor:

Yeah. Stress it's my narrative today, I would say the same $10 ago. I would have said the same $15 ago, $20. In fact, I did, I said the same $20 ago. So, that narrative is exactly the same. The management, the assets, the growth profile, the copper market. When you ask me that question and I answered it before, it's trading now at fair value in relation to my target price, which is just a secondary derivative of other metrics, but in terms of its fair value, intrinsic value, which I think's about 16, $17 per share, it's not cheap. So, when said I earlier, you're not buying a cheap stock in OZ today, a great company and everything about it, you should feel comfortable what you're buying, it will still track the vagaries of the copper price. So, if the copper price goes back to 3.50 next year, OZ is probably not going to be $25 at that time.

So, be aware. These are the companies you want to buy when they're in a value situation, in the mid-teens. Today I'm buying it, and my next step from here is buying for momentum, which is the copper price it needs to stay at or around the current level. So, I'm not trying to hedge my bets, but I like it and I would hold it if I had it, but would I put a dollar into it today, that was a fresh dollar and I had no investment? There are other cheaper copper stocks I'd probably look at, to be honest. And that's not a criticism of OZ. That's just a realisation of relative value.

James Gerrish:

Pete, thank you very much for giving us a great insight into OZ Minerals, a stock with a pretty good future by the sound of it. And let's hope for some short-term weakness to add it to our portfolios.

Peter O'Connor:

It would be good. I don't wish it but it'd be good.