Kagara
Ltd (ASX - KZL)
ASX
RELEASE
14 February 2008
Open
Briefing®. Kagara. December Quarter Discussion & Outlook
Record
of interview:
corporatefile.com.au
Kagara Ltd (ASX
code - KZL) announced an unaudited profit before tax of A$51 million for the
December quarter 2007 with record copper production and zinc and lead
production in line with budget. Can you explain how the profit figure compared
with expectations or budget? How is production tracking against your
expectations for the year?
Chairman
Kim Robinson
The unaudited
profit was well in line with our expectations. We were always expecting to
have a more subdued first half for the year, with increased production in the
second half of the financial year. We still expect a big lift in our
copper production in particular for the remainder of this financial year.
corporatefile.com.au
The unaudited
profit before tax of A$51 million for the December quarter 2007 compared with
A$58 million for the previous corresponding period. How did you achieve a
profit broadly in line with the pcp when zinc and copper prices were much
lower?
Chairman
Kim Robinson
For the
corresponding period in FY07, we only had a small contribution from the
Thalanga plant, which is currently our biggest copper producer, so it stands to
reason that we would produce more copper in the current six month period, but
metal prices were much lower in the December half compared with the pcp.
So overall it was a very satisfying profit result, particularly as the zinc
price fell by some 50%.
corporatefile.com.au
Cash operating
margins for copper and zinc decreased from the previous quarter mainly due to
lower zinc and copper prices. What was the cost performance? Do you
expect an easing of cost pressure now that zinc and copper prices have
fallen?
Chairman
Kim Robinson
There will be a
reduction in costs as a result of lower smelting participation charges if metal
prices remain at lower levels, but the cost per pound of copper production will
be more impacted by the grade of ore being processed which we expect to be
higher this quarter. Zinc cash costs will probably remain at December quarter
levels.
corporatefile.com.au
What longer term
production and operating cost trends do you expect?
Chairman
Kim Robinson
Importantly, we
have the Mungana plant coming on stream around the end of the March quarter
2009 and this project has significant copper, silver and gold by-product
credits. We would expect our cash costs at Mungana to be close to
US$0.30/lb, even in today’s high cost environment. We expect
Mungana to have a fairly significant impact on our overall cash costs of
production as we will be producing 50% of our zinc from Mungana.
corporatefile.com.au
You stated that
several important discoveries were made during the quarter and are now
progressing towards development including Admiral
Bay, Waterloo and Lounge Lizard. Can you
explain the results and how they have added to the understanding of each
discovery?
Chairman
Kim Robinson
Admiral Bay is a very large deposit drilled over
a 2.5km section of an 18km strike length and it’s likely to be a
Company-changing development. It has been an exciting time over the last
six months, but because of its size it is a longer term project, with
production expected in about five years.
Recently, at
Lounge Lizard, we’ve had some exciting results including wide zones of
disseminated mineralisation underlain by basal massive nickel sulphide
zones. We expect to be drilling the strike extensions to Lounge Lizard
for a considerable time to come.
The recent
announcement of a significant upgrade to the base metal resource at Waterloo, located near the
Thalanga plant, has shown that this deposit will be a very low cost producer
when we begin processing the ore through either the Thalanga plant or the Mt
Garnet plant. It has only been drilled to a depth of 250 metres and
we expect the deposit to grow larger.
One of the more
exciting things we’ve found in recent times is the Victoria mineralisation, which we’ve
just started to drill out. We’re discovering very wide zones of
high grade zinc and copper mineralisation, which we would expect to be feeding
into the Mungana treatment plant when that comes on stream. Victoria is located only
5km to the east of the Mungana deposit. It’s early days for Victoria, but it does
have the potential to be larger than anything else we’ve found in the
Chillagoe district.
corporatefile.com.au
Some of the
intersections have been very high grade. How consistent is each orebody
in terms of grade continuity?
Chairman
Kim Robinson
The Lounge Lizard
nickel deposit is turning out to be very predictable. Continuity of
mineralisation in all of the other deposits is also predictable.
We’ve not had any surprises in terms of consistency. Admiral Bay in particular is returning very
significant widths of mineralisation grading between 6% lead and 14% zinc in
every hole drilled over a 2.5 kilometre strike length.
corporatefile.com.au
What are your
current objectives with each of the exploration programs?
Chairman
Kim Robinson
The objective in North Queensland is to maintain at least a five year mine
life at all of our operations, collectively producing 45,000 tonnes of copper
and 100,000 tonnes of zinc in concentrate per annum.
At Lounge Lizard,
our objective is to establish sufficient nickel resources to justify a
standalone, high-grade massive nickel sulphide mining operation, or
alternatively a large tonnage, low-grade operation capturing wide zones of
disseminated mineralisation overlying the massive sulphides.
At Admiral Bay, our initial target is to outline a
resource large enough to sustain a mining operation for at least 10 years at 5
million tonnes per annum. In the longer-term, at Admiral Bay,
we believe the 18 kilometres of known mineralisation could ultimately sustain a
50-year operation.
corporatefile.com.au
At what stage of
exploration is each project? Can you map out an expected development
program for each deposit?
Chairman
Kim Robinson
In terms of the
new projects we’ve discovered in North Queensland, the recent Victoria deposit is very
exciting, but it’s still early days. Waterloo seems to be growing each day.
As the recent resource upgrade shows, it has only been drilled to 250 metres
depth and is open along strike and at depth, so it has the potential to be much
larger.
On Admiral Bay and Lounge Lizard, we will be
calculating initial resources in the second quarter of this year.
corporatefile.com.au
Kagara received
welcome news from Queensland’s
Environmental Protection Agency (EPA) on the Mungana basemetal development. Can
you explain the implications on this decision not requiring an environmental
impact statement (EIS)?
Chairman
Kim Robinson
The decision by
the EPA not to enforce an EIS was an important one for us. We’ve
been through the process with the Federal Government a couple of years ago and
were given the all clear. The State Government did not require an EIS
because initially we had carried out our environmental work to an EIS standard
before we made the applications. Now, it’s just a matter of working
through an amendment to our existing Environmental Authorities with the EPA.
corporatefile.com.au
A fully franked
dividend of A$25.9 million (A$0.12 per share) was paid during the quarter. With
cash on hand of A$16.5 million, how will you manage your growth projects?
Chairman
Kim Robinson
We have a loan
facility in place, which we can utilise when required and we may be looking at
increasing this facility to back our future growth plans. We are
producing strong cash flows, much of which is going into development, as well
about $35 million a year on exploration.
When the current
exploration program has been completed at Admiral Bay,
we will look at options for development, including debt, equity and possible
joint ventures to fund this massive project. In the medium term, we will
also have a capital requirement to develop the large Mungana and Red Dome
precious metal deposits if our current exploration program proves successful.
We are currently
funding the development of the Mungana plant and base metal mining operation
mostly out of cash flow.
corporatefile.com.au
How do you rank
the value of each of your growth projects?
Chairman
Kim Robinson
They’re all
valuable in their own right for one reason or another. Obviously, the North Queensland operation is extremely valuable.
The amount of mineralisation we’re finding up there has surprised us.
However, the
project which is potentially Company-changing is Admiral Bay.
It’s a world class project, which we know extends for an 18 kilometre
strike length and potentially can be in production at 5 million tonnes per
annum of ore, for in excess of 50 years, as long as we prove that to be a
viable proposition.
The Lounge Lizard
nickel project at Forrestania is shaping up to be a substantial asset as
well. It’s at an early stage of development, but we’re
hitting mineralisation in every hole we drill. We would expect that to
continue and we wouldn’t want to be constrained in our thinking about its
ultimate size.
The wild card in
our portfolio is a potential large-scale, gold-copper-molybdenum development at
Red Dome and Mungana. We will be adding to the existing 53 million tonne
resource there this year.
We’re pretty
excited about all of our projects and it’s difficult to rank them. We
always expected to be able to keep adding to our reserves and it seems to be
panning out that way.
corporatefile.com.au
Thank you Kim.
For further
information on Kagara Ltd visit www.kagara.com.au
or contact Kim Robinson on 08 9481 1211.
To read, or to
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