Zinifex, which is heading down the track towards a merger with Oxiana, has confirmed what many analysts were suggesting would happen: it is going to have a lower second half because of the drop in zinc prices and rising costs.
In a presentation to an investment conference the company said it was experiencing cost pressures from energy, labour and other areas.
As well, zinc and lead treatment charges in the second half of the financial year were rising, while average zinc prices were substantially lower.
Combined with increased exploration activity and merger costs (Allegiance Nickel and Oxiana), these factors would more than offset higher zinc and lead production and sales.
The company said in the presentation that excellent zinc and lead production was 8% and 12% ahead of last year respectively enabling higher sales.
"Zinc and lead production moderately lower than last year, 5% and 2% respectively, higher ore throughput unable to fully offset lower grades; production for June half expected to be moderately better than 1H08."
The company indicated there was a small bright spot with lead prices down, but not out, thanks to low world stocks of the metal.
But it warned that "lead prices remain susceptible to further supply shocks".
Efforts by China to limit lead exports had seen 2008 lead treatment charges rising as a result. This had helped underpin the world price and keep it higher than zinc.
"Zinc prices have fallen and so too have expectations of large surpluses.
"LME (London Metal Exchange) zinc stocks remain low and support a modest 2008 surplus forecast.
"Further disruption to supply could see zinc prices rebound."
Zinifex said it was yet to determine a new name for the combined entity created through its $6 billion merger with gold and copper miner Oxiana Ltd.
The merged company would be the world’s second largest zinc producer, with a significant position in copper, lead, gold and silver.
Shares in Zinifex were 10 cents lower at $10.32 at the close, while Oxiana’s shares were 2 cents down at $3.52.
The two companies are around five weeks away from a meeting of Zinifex shareholders who will vote on the merger, which will be done by a scheme of arrangement.
There’s a long list of possible interlopers, but despite a couple of run ups in the OXR share price (the last was last week), no one has appeared so far.
Spoiling bids are usually made very close to the scheme meeting to frustrate any changes by the two merging parties and to force a new decision.
And printing and distribution group,
PMP
Ltd had some sad news for shareholders yesterday: 2008 earnings won’t make guidance and in fact will be lower than the 2007 result. In a statement to the ASX, the company announced a "full-year EBIT forecast of circa $85 million (before significant items) which was below the current market consensus of around $90m and below last financial year of $91.3 million".
In the statement, PMP CEO, Mr Evans said, “Printing volumes would be above last year, and pricing would continue to be competitive for the remainder of the financial year.
"Additional volume in the core printing business coupled with the integration of the Times acquisition will see higher operating costs in the second half”.
He also noted that the Times integration plan was on schedule and that benefits of the acquisition would begin to be realised from July 2008.
Mr Brian Evans said, “While the full year operating earnings is expected to be below last year, we remain on track to deliver our target net debt position of below $220m at 30 June 2008”.
Mr Evans noted that significant one off costs in the year would reach approximately $15m, including a non-cash write down of surplus assets of $5m and costs relating to the relocation of Times Printing of approximately $6m.
"Interest expense for the full year is expected to be below last year at approximately $18 million ($23.8m Last Year)," Mr Evans said.
The shares eased 6c to $1.20
Alumina
said it has launched an offer to raise about $US300 million in convertible bonds, with the proceeds to be used to repay debt and fund investment in existing growth projects.
Shares in Alumina, a 40% partner in the Alcoa World Alumina and Chemicals joint venture in which Alcoa holds 60%, were placed on trading halt earlier on Tuesday pending an announcement on the raising.
"The proceeds of the issue will be used to replace existing bank debt and to fund Alumina’s investment in AWAC’s current growth projects."
Alumina said it has recently extended the maturity profile of a number of its core banking facilities, and the addition of further term debt through the Convertible Bonds is consistent with the Company’s conservative financial policies.
When the company asked for trading in the shares to be halted, there was a small frisson of interest around the market as some dealers thought there could be an offer coming from either Alcoa, its major shareholder, or its new best friend, Chinalco of China. But that wasn’t to be.
