The thumping handed out to metal prices has produced conflicting market reactions for two medium-sized miners yesterday after they provided market updates.
The updates came as nickel miners were considering the impact of production cuts and delays to two new mines by Brazil’s Vale. The company revealed the moves late last week in Brazil in its third quarter results.
Kagara Ltd, the company with some promising mines and prospects in Queensland and Western Australia, was hammered to a near all time low of 55c.
That took the fall from the all time high of $6.90 in January of this year to a depressing 80%, while shares in WA nickel producer, Minara resourced bobbed up a cent to close at 36c. That was in a rough and volatile day’s trading.
Kagara took a major hiding from investors nervous about the implied bad news in the short update ahead of a longer quarterly report on Thursday.
"The September quarter saw record copper production from Kagara’s North Queensland operations delivering a substantial cash operating margin of US$1.76 per pound of payable copper and even at today’s metal prices, the copper and zinc operations continue to be cash flow positive.
"However, in view of the significant deterioration in metal prices since the end of the quarter, the company is now conducting a review of capital, operations, development and exploration expenditure aimed at optimising cash flows and profits.
The exploration program at the Admiral Bay project has now been completed.
"The results of this review will be communicated in the quarterly activities report to be released on Thursday 30 October 2008," the short statement said.
Down went the shares and the continued falling through the day and ended at its low.
And yet it was only a week ago that the statements from Kagara were more upbeat about the Lounge Lizard nickel prospect in WA and the Admiralty Bay project.
And there was an earlier update on the performance of the company’s Queensland operation.
"Kagara Ltd wishes to inform shareholders that a continuing shift towards copper production has resulted in record copper production of 9,472 tonnes being produced from the North Queensland operations for the September Quarter. Details will be contained in the Quarterly Activities Report to be released next week.
"The cash cost of production from the 7,571 tonnes produced from the Thalanga and Mt Garnet copper plants averaged US$1.45 per pound of payable copper and delivered a cash margin of US$1.76 per pound of payable copper.
"Zinc production from the polymetallic plant was 4,411 tonnes but as a result of the increased copper in the feed which averaged 1.7% copper, the cash cost was down to US$0.47 cents per pound of payable zinc, delivering a cash margin of US$0.25 per pound of payable zinc.
"These excellent results reaffirm the Mt Garnet operations as one of the lowest cost copper and zinc producers in the industry."
That was a week ago today. A lot of things have changed since then, including a very sharp fall in the value of copper, and the plunge in the value of the Australian dollar, which should really be positive to the likes of Kagara.
We will find out Thursday.
Meanwhile Minara Resources seems to have escaped the fate of Kagara in the wake of its statement to the market because it’s been telling investors for a while now that it was cost cutting. The Vale news boosted nickel prices Friday, but local investors are more interested in what’s happening here with companies like Minara.
The Australian lateritic nickel producer controlled by Glencore International, said its reducing costs by cutting workers and changing its mine plan as a slump in nickel prices erodes profits.
"In response to the declining nickel price and other rapidly changing market conditions, Minara has been restructuring its operations over the last six months focusing on reducing costs.
"This has seen the company introduce a range of measures including: cutting discretionary expenditure; reducing the workforce, both Minara’s and the use of contractors; cutting capital project work; reducing overheads; initiating a lower cost mining plan, and reducing the operation’s sulphur usage.
"All these initiatives have contributed to a significant reduction in the cost of nickel production by Minara.
"Most importantly, the recent collapse in the price of sulphur has seen prices on the spot market returning to historical levels of below US$100 per tonne.
"This will assist in reducing Minara’s cost of production. Sulphur is a major input for Minara’s laterite nickel processing.
"It also should be noted that the overall impact of the decline in the nickel price has been partially offset by the decrease in the AUD:USD exchange rate.
"As previously advised to the market, Minara is currently investigating putting in place longer term funding arrangements using either debt and/or equity."
CEO, Peter Johnston said in a statement to the ASX that "Whilst we are in a challenging period of a turbulent commodity market, and nickel has certainly been affected, we believe in the mid to longer term that prices will stabilise and then return to a more favourable outlook.
"Because we started restructuring the business six months ago, we have already achieved real and substantial cost savings.
"The recent precipitous fall in sulphur prices will also assist us in achieving considerable additional cost savings.
"Though we have made substantial progress, b
