In contrast to the experience of Newcrest, zinc and lead miner, Zinifex has reported a solid increase in the production of its two key minerals in the first half of the current financial year.
Zinc production was up 8% to 301,274 tonnes in the six months, after rising to 147,288 in the December quarter.
Lead output rose 12% to 37,406 tonnes in the half and was up 29.5% in the quarter to 18,863 tonnes.
Investors appreciated the news, even though zinc and lead prices are weak at the moment because of fears a US slowdown will cut consumption,
Zinifex (ZFX) shares rose 94c or more than 10% to $9.88: that's a long way from the levels of a year ago when the shares were approaching double this level with zinc and lead prices still high.
But the company had another message and another metal it was pushing.
"Zinifex continues to deliver on its strategy to grow our mining business," it said, pushing the case for its so far spurned offer for Tasmanian nickel explorer Allegiance Mining NL.
It said nickel was an attractive long term growth business and Allegiance's Avebury nickel project was an excellent entry point for the company.
"With nickel production due to commence in early 2008, this mine would add immediate growth to Zinifex's existing profit centres, the Century and Rosebery mines," it said.
Allegiance has rejected the offer, saying it undervalues its assets and potential.
Zinifex has a war chest of $2 billion to pursue its growth strategy, after selling down most of its stake in Nyrstar last year. Nyrstar was formed to hold the lead and zinc processing businesses. It was floated late last year in Europe.
Directors said its purchasing power "is increasingly becoming more valuable in the current volatile market conditions".
That's handy because zinc prices weakened in the December quarter, averaging $US2,623 per tonne to be down 19% on the September quarter and 37% on the December quarter of 2006.
"The zinc price in Australian dollars has been further impacted by the continued weakening of the US dollar," Zinifex said.
But Zinifex said demand for zinc remains healthy, especially from China.
"For these reasons we believe that any surplus that may develop will be modest and will only return stock levels to, historically, more normal levels," it said.
"Further, we believe markets have already priced in an appropriate zinc price correction in response to the most pessimistic of forward outlooks."
"As with zinc, stock remains at historically low levels and supply continues to be affected by the Chinese government's decision to introduce an export tax is likely to contribute to a significant fall in that country's lead exports," Zinifex said.
"We remain positive on the near term outlook for lead where supply issues continue to hold the markets attention."
"Lead prices similarly saw a correction over the quarter but remain well above the levels for the same time last year. Lead closed at US$2,532 per tonne with an average quarterly price of US$3,215 per tonne, however, this is in the context of record high prices during the September Quarter.
"In comparison, lead prices were almost double that of the quarter last year.
"The rapid decline in LME stocks of lead experienced in the September Quarter was arrested with stocks rising to a close of 45,500 tonnes. As with zinc, stock remains at historically low levels and supply continues to be affected by the Chinese Government's decision to introduce an export tax is likely to contribute to a significant fall in that country's lead exports. We remain positive on the near term outlook for lead where supply issues continue to hold the market's attention.
"Negotiations on treatment charges for zinc in concentrate are underway. However, there has not as yet been any real convergence of positions between the mines and smelters. This lack of convergence is being further impacted on by the volatile market conditions currently being experienced. While it is too early to speculate on the outcome of negotiations it is reasonable to assume that increases in concentrate availability will result in some up-lift in treatment charges which Zinifex believes should only be moderate.
"Treatment charges for lead in concentrate are more difficult to comment on as there is no industry wide benchmark. However, a reduction in lead exports from China due to tax changes has depressed lead concentrate demand and it is therefore reasonable to assume that lead concentrate treatment charges will increase.
"Our Century regional exploration program has gathered pace with further drilling results from north east extensions of the Silver King base metal vein system returning significant intersections of high grade lead, zinc and silver.
"Drilling has continued at both the Izok Lake and High Lake projects in Nunavut Territory, Canada indicating potential to increase mineral resources at both projects. An inaugural mineral resource estimate has been completed for the Menninnie Dam deposit in South Australia, and exploration focus in 2008 will be on testing and developing targets in the remainder of the licence area with the aim of adding significantly to the current resource."
The new CEO, Andrew Michelmore officially starts on February 1.
