Oz Minerals Case Study

TABLE OF CONTENTS

PAGE ANALYSIS

1 Introduction

1, 2 PESTEL analysis

2 Internal environment

2, 3, 4 SWOT analysis

4 Strategic intent

5, 6 Mission

6, 7 Recommendations

OZ Minerals (or OZL as it appears on the ASX) is an Australian mining company which emerged from the merger of Oxiana and Zinifex in 2008, see appendix 1. Their focus is copper, with OZL owning Prominent-Hill, a copper-gold mine in South Australia and the Carrapateena copper-gold mine (SMH, 9/3/2011). The merger made OZL the third largest diversified mining company in Australia (Frith, 2010). However, about a year after the merger, the company struggled on the brink of collapse (Frith, 2010) until the majority of their assets were sold in 2009, see appendix 2 (New York Times, 4/2/2009). Since then OZL has been growing, reporting a net profit for 2010, up from a loss in the previous year (OZ Minerals Annual Report, 2010). With the mining industry being so competitive, OZL must have a strong, adaptable strategy in order to sustain a competitive advantage and maintain profitability in a rapidly changing environment.

P.E.S.T.E.L ENVIRONMENTAL ANALYSIS

FACTOR ISSUE POTENTIAL EFFECT ON GROWTH

Economic Increasing price of commodities Positive

Political Possible introduction of a Carbon Tax Negative

Legal Involvement in class action Negative

Technological Diversified use of copper

Increasing demand for mining equipment Positive

Negative

Social/Cultural Increasing concerns about sustainability Negative

Demographic Skills shortage and ageing population Negative

Green environment Increased demand for more environmentally friendly practices Positive/Negative

Figure 1.1: PESTEL Analysis for OZ Minerals

There are many external factors that may positively or negatively affect the growth of OZL.

The world sale price of copper grew 19% in 2010 (McNamara, 2011), providing OZL with the opportunity to cash in, leading to increased profits and increased opportunity for growth, especially as their Prominent Hill site produced 112,171 tonnes of copper in 2010 (SMH, 21/1/2011).

The demand for hybrid cars is growing due to the increasing demand for more environmentally friendly transportation, increasing the demand for copper. Copper is used in hybrids to run the electricity, with each car requiring 50kgs (Tyrrell, 2011). This provides OZL the opportunity to expand on copper mining since the demand is high.

With OZL paying over $100 million in tax last financial year (OZ Minerals Annual Report, 2010), the introduction of a Carbon Tax would have a detrimental affect on profitability. The tax is being considered due to the increasing concerns of society for a greener environment, which involves encouraging a reduction in carbon emissions. This tax could cost between $12 and $23 per tonne of carbon emitted (Muscillo, Ricketts, & Wright, 2010). For OZL, based on their 2010 carbon emissions of 297,995 tonnes (OZ Minerals Business Review, 2010), this tax could cost between $3,575,940 and $6,853,885 per year.

OZL recently settled two class actions for $60 million (Finance News Network, 2011) due to allegations that they "failed to disclose the full extent of its debt and refinancing difficulties" (Wen, 2011). The result of this allegation may have led to a reputation of being misleading and deceptive. This could hamper growth as OZL may find it difficult to find new investors, due to lack of trust.

The recent mining boom has led to increased demand for mining equipment, putting a strain on equipment supplies, with a waiting list of up to two years for new equipment with the Japan earthquake wiping out equipment (Burke, 2011). This may hamper OZL's growth as they may not be able to get equipment needed to expand operations.

The aging population as well as the shortage of skilled tradespeople has put pressure on the availability of suitable labour for the mining industry (The Newcastle Herald, 2011). This may hinder growth prospects for OZL if they are unable to find employees with the right qualifications to do the job.

It appears there are more negative than positive growth factors, indicating growth difficulties for OZL. However, if they fully take advantage of the positive opportunities, they can encounter future growth.

INTERNAL ENVIRONMENT

There are some key resources and capabilities of OZL which set it apart from other mining companies. The well-funded exploration program has already seen the expansion of OZL to Carrapateena and Cambodia and will continue to foster the growth of the company. The highly professional and recently reshuffled senior executive team is an intangible asset that brings experience to all decisions made on behalf of OZL. Low costs are the result of efficient production capabilities. These factors combine to create a strategic competitive advantage. See Strengths and Weaknesses below for further analysis of the internal environment.

S.W.O.T ANALYSIS

KEY STRENGTHS

Current financial healthiness

Experienced senior staff

Growth prospects

Exploration

The current financial healthiness is due to a strong net profit in 2010 of $539 million, which was the result of a high production of copper (112,171 tonnes) and gold (196,400 ounces), and cash costs at Prominent Hill being in the "lowest quartile of worldwide copper producers" (OZ Minerals Business Review 2010, p2), as well as high levels of production.

The project pipeline consists of many new and promising ventures that will deliver in the long-term. For example, in March 2011, OZL agreed to buy the Carrapateena copper-gold project in South Australia for $248.23 million (Fitzgerald 2011),