Base metal miner, Kagara Zinc, has cut its 2006-07 profit forecast by $45 million following problems at its Queensland operations.
Kagara said yesterday it hadrevised its profit before tax down to $130 million,from $175 million.
The drivers for this lower result were: lower copper production a cost of $20 million; lower zinc output, $10 million; lower than expected copper and zinc prices, a cost of $10 million and changes in production and the impact of the higher Australian dollar, $5 million. A totalof $45 million.
Kagara shares dipped 55 cents, or around 8 per cent, at one stage to $5.84 yesterday, before a gentle afternoon bounce saw the price rise back above $6 to settle at $6.11.
The latest fall came after a rollercoaster ride in recent months that saw the shares fall sharply in late March to just under $5 each, before recovering to just over $7 in early June.
This is the second downgrade for Kagara, which in January revised its full year forecast down from $200 million to $175 million, but maintained it in April as it saw copper offsetting the downturn in zinc.
Kagara, which produces copper, lead and zinc concentrate from its operations in Queensland, said a 25 per cent drop in overall output during the three months to June 30 would have an impact on profit.
The company said the drop in production is a result of a timing delay in accessing high grade ore from the Balcooma polymetallic and copper open pits due to poor weather and interruptions to ore haulage.
"To overcome the production issues at its operations, Kagara has assumed responsibility for open pit mining at Balcooma and Mt Garnet," the company said in a statement to the ASX.
Kagara said the 2007-08 financial year would see the mining and milling of Mt Garnet ore carried out over the wet season in a bid to reduce the dependence on ore from Balcooma, thus minimising further production disruptions.
The company said copper production would double to about 35,000 tonnes of metal in concentrate in the 2007-08 fiscal year with zinc production expected to be at 40,000 tonnes of metal in concentrate.
The Company revised its profit before tax to approximately $130 million. This compares to an estimate of $175 million made in the previous quarterly report released in April 2007.
The company was optimistic then in its third quarter activities report. The copper business looked like holding up after zinc output plunged sharply.
"Although the March quarter was a difficult period for Kagara, resulting in lower production of zinc, lead, silver and gold due to heavy monsoonal rains, copper production was a record 43% higher than the previous quarter at 5,813 tonnes with substantially increased cash operating margins averaging US$2.15 per pound of payable copper.
"This rapid ramp up in copper production will continue into the June quarter as the Thalanga plant reaches full production and zinc production will return to previous levels as the wet season tapers off.
"Increased metal prices will offset the lost production in the March quarter and our profit forecast based on copper prices for the remainder of the year of US$3.62 per tonne and zinc prices of US$1.70 per tonne for the year ending June 2007 remains unchanged at A$175 million before tax," The company told the ASX on April 24.
But in the statement to the ASX yesterday the news was gloomy:
"Copper, lead and zinc concentrate production from Mt Garnet and Thalanga for the June quarter is expected to be 26,000 tonnes, 4,700 tonnes and 18,000 tonnes respectively which represent a shortfall of 25% on the budgeted levels. These estimates are approximate given the recent close to the reporting period, but are viewed as realistic.
"The drop in concentrate production represents a timing delay in accessing high grade ore from both the Balcooma polymetallic and copper open pits. This high grade material will now be processed in the 2007/08 financial year.
"The delayed ore production was due to a shortfall in tonnes of waste moved from the open pits at Balcooma and this issue was exacerbated by poor weather conditions and the interruptions to ore haulage.
"The profit before tax was impacted by reduced revenue from zinc ($10 million) and copper ($20 million) concentrate production, changes in exchange rate assumptions ($5 million) and lower than budgeted copper and zinc prices ($10 million).
"To overcome the production issues at its operations Kagara has assumed responsibility for open pit mining at Balcooma and Mt Garnet. Mining equipment is being supplied on a dry hire basis by EMECO Holdings Ltd at the Balcooma site and Kagara has taken over as owner/operator at Mt Garnet.
"The total cost of this restructuring will be approximately $5 million including the assumption of lease liabilities.
"Kagara believes that substantial improvements in production will result from this initiative. In addition, the 2007/08 financial year will see mining and milling of Mt Garnet ore carried out over the wet season thus reducing the dependence on ore from Balcooma and further minimising the risk of production disruptions due to poor road and weather conditions.
"The 2007/2008 financial year will see copper production double to approximately 35,000 tonnes of metal in concentrate and zinc remain at approximately 40,000 tonnes of metal in concentrate.
Zinc production will increase with the commissioning of the Mungana mine to 70,000 tonnes of metal in concentrate in 2008/2009 before stabilising once full production is reached at 100,000 tonnes of metal in concentrate in 2009/2010.
"Copper production similarly will stabilise at 45,000 tonnes of metal in concentrate per annum once Mungana is in full production."
