World gold prices are at multi-year highs. Copper, zinc and lead are doing well, especially copper. Other precious metals are surging. Oil is strong but the list of Australian mining companies being battered by cost and operational concerns continues to grow.
Oxiana confirmed news it half revealed last week that its Prominent Mine development in South Australia would cost 30% more and Lihir Gold also confirmed suggestions that its 2007 gold output would fall short of guidance because of industrial and other problems.
It's something many investors are shrugging off in their eagerness to hop on board the resources boom here, which was further boosted on Monday with Xstrata's friendly $3.1 billion offer for Jubilee Mines.
Xstrata yesterday won a much cheaper offer for NSW coal miner, Austral.
Centennial Coal handed Austral to Xstrata when it accepted the $479 million takeover bid for Austral. Centennial had an 86% stake in Austral and an associate of Xstrata held most of the remaining shares.
Centennial, which sold its Anvil Hill project in the Hunter Valley to Xstrata for $557 million in September, said proceeds from the sale of Anvil and Austral would be used to cut borrowing by about $400 million.
Oxiana did its softening up well last week with hints in briefings around the quarterly production report. It promised an update after a board meeting and it came yesterday, the shares only falling 10c to a low of $4.01 before ending a touch higher at $4.04.
In contrast Lihir caught the market by surprise, even though several broking reports had been hinting of a shortfall in output because of a strike in September.
Lihir says gold output for the year will be around 750,000 ounces: a record for any one year but still under the guidance of 800,000 to 830,000.
The shares fell 26c to a low of $4.15 on more than 20 million traded. LGL shares ended at $4.16.
The news undermined much of the rebuilt confidence investors had in Lihir after it de-hedged its accounts to remove the deadening effect of hedged gold sales.
That exposed the company more to world prices which were rising, and then spurted higher in the past fortnight, taking LGL shares with them.
But yesterday a dose of realism. Certainly the market is now cautious about the stated cost of an expansion plan at Lihir
Lihir says a study of the $550 million expansion plan, to increase output to more than one million ounces of gold a year will be completed early next year, but management yesterday indicated in a briefing that the final cost may rise.
A scoping study in 2006 puts the capital expenditure for the expansion at a "conservative" $500 million to $550 million but CEO Arthur Hood indicated that the group was feeling cost pressures.
"We're seeing early indications there are some fluctuations in pricing from what we were given before," Mr Hood said on that call.
The 2007 downgrade was a result of industrial action, which temporarily halted operations during the third quarter, and equipment failures.
Mr Hood said industrial action and the ensuing seven-day delay in resuming normal production reduced annual output by about 35,000 ounces.
The strike had flow on effects with the interruption disrupting the de-watering of the pit and delaying access to high-grade ore areas.
"As a consequence of these setbacks, production in the fourth quarter is expected to be about 220,000 ounces, taking full year production to approximately 750,000 ounces," Mr Hood said in the company's production report.
"While this is below initial expectations, it will still be a record year for the company."
"Unit costs in the fourth quarter are expected to reduce significantly, compared with the third quarter, due to increased gold production and higher geothermal power generation.
"For the full year, total cash costs are expected to be in the upper $200s per ounce, which still positions LGL at the lower end of the cost curve.
"Revenue averaged $677/oz compared to $664/oz in the prior quarter. Towards the end of the quarter, enhanced revenues were realised as a result of a rising spot price. Revenues benefited from an absence of hedge deliveries, following the close-out of the hedge book earlier this year," Lihir said in the production report.
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Meanwhile Oxiana blamed the rising cost of materials and labour for being the major reasons for the 30% rise in the cost of Prominent Hill.
The company told the ASX yesterday that the Prominent Hill copper and gold mine in South Australia will cost $1.08 billion, up from an earlier estimate of $850 million in August 2006, and an original cost of around $350 million back in 2004 when the idea was first embarked upon.
Despite this latest blow out the mine is ahead of schedule, (site work is 36% complete) as the company said last week and will start production in the September quarter of 2008.
Prominent Hill will be Oxiana's third mine and will more than double the company's copper output and increase gold output by a around a third in the first full year of production.
OXR said in yesterday's statement that "Buoyant market conditions and higher copper, gold and silver prices have significantly improved project economics since Board approval some 12 months ago. The expected contribution of Prominent Hill to Oxiana's earnings and cash flows has increased substantially.''
Prominent Hill is forecast to produce 117,000 tons of copper, 86,000 ounces of gold and 390,000 ounces of silver in its first full year of operation, Oxiana said today. Site construction is 36% complete, it said.
That will generate $700 million in extra revenues, OXR said in its bullish statement.
A major drilling program at Prominent Hill started 10 months a
