Kagara Zinc look for growth through zinc and copper

West Perth-based metal producer Kagara Zinc Ltd has announced its half-year results, headlined by a net profit of $5.4 million, a 31 per cent increase over the same period in 2004.

The first half net profit, which compared with a figure of $4.1 million for the previous corresponding period, was struck on increased sales revenue of $31.3 million - compared to the 2004 result of $22.9 million.

Casting an eye forward to the second half of the year, the company expects rising zinc and copper production at its Mt Garnet operations in Queensland to drive a strong increase in full-year earnings.

In addition to its strongly growing zinc production, Kagara is forecasting copper metal production of 9,000 tonnes for 2005/06, rising to 25,000 tonnes for 2006/07, once its Thalanga facility is fully integrated with the broader Mt Garnet operations.

At the 31 December 2005 balance date, Kagara had cash on hand plus receivables of $15.3 million, providing a solid platform for its continued growth.

THE FULL MEDIA RELEASE APPEARS BELOW.

ANNOUNCES $5.4M FIRST HALF PROFIT -
FORECASTS STRONG INCREASE IN EARNINGS
RISING ZINC AND COPPER PRODUCTION UNDERPINS EARNINGS GROWTH

Base metal producer Kagara Zinc Ltd (ASX: KZL) today announced a 31% increase in interim net profit to $5.4 million and forecast a strong increase in full-year earnings on rising zinc and copper production at its Mt Garnet operations in Queensland. The first half result reflected the impact of an extended period of commissioning on two new ore feeds at Mt Garnet and adjustments relating to Australian International Financial Reporting Standards amounting to $7.4 million worth of lead and copper hedging outstanding at the end of the period.

The first half net profit, which compared with a net profit of $4.1 million for the previous corresponding period, was struck on increased sales revenue of $31.3 million (2004: $22.9 million), based on lower polymetallic production from Mt Garnet of 15,689 tonnes of contained zinc, 7,171 tonnes of contained lead and 1,025 tonnes of contained copper.

Executive Chairman, Mr Kim Robinson, said the outlook for the second half was very positive with the Company expected to produce approximately 23,000 tonnes of contained zinc, representing a 50% increase on the first half, at an estimated cash cost of US$0.30-35/lb, together with strongly increasing copper production and other by-product credits.

"The first half represented a transition period for Kagara, as we commissioned ore feed from the new Dry River South underground mine and the nearby Balcooma open pit, located some 120km south of the Mt Garnet plant, together with a trial parcel of high-grade supergene copper feed from the Balcooma," Mr Robinson said.

"The central processing facility at Mt Garnet was temporarily unavailable for normal processing of zinc ore after being reconfigured to process copper supergene ore for a 6 week campaign, which resulted in the production of 2,591 tonnes of copper metal at a cash cost of US$0.89/lb of payable copper," he added. "The second half will see strongly increasing zinc, copper and lead production, with the main Mt Garnet facility now reconfigured for zinc production and the recent commissioning of the new Mt Garnet copper circuit."

The copper circuit has been constructed to provide a dedicated treatment facility for high-grade copper ore from Balcooma, with expected production of 4,000 tonnes of copper metal by financial year-end at a cash cost of less than US$1.00/lb of payable copper. This is expected to make a substantial contribution to Kagara's full-year financial results.

Mr Robinson said the forward production growth profile for the Company was outstanding, following its recently announced option agreement to purchase the Thalanga base metal treatment plant for $2 million, located 300km south of Balcooma near Charters Towers. "This represents a very important strategic acquisition for Kagara, with the capacity to produce a further 20,000tpa of copper metal for the Company with ore sourced from our high-grade Balcooma resources," he said.

In addition to its strongly growing zinc production, Kagara is forecasting copper metal production of 9,000 tonnes for 2005/06, rising to 25,000 tonnes for 2006/07, and subsequently to 35,000tpa from 2007/08 once the Thalanga facility is fully integrated with the broader Mt Garnet operations.

It is proposed to utilise the Thalanga plant to treat the bulk of the resource of 3.3 million tonnes at 3.9% copper already defined at Balcooma, with mining and processing expected to commence as soon as the necessary environmental and statutory approvals are in place. Production is expected to commence at an annualised rate of 20,000 tonnes of payable copper metal in concentrate per annum by October 2006.

At the 31 December 2005 balance date, Kagara had cash on hand plus receivables of $15.3 million, providing a solid platform for its continued growth - including the ongoing intensive exploration and feasibility program at the proposed new Mungana/Red Dome production centre, 150km north-west of Mt Garnet. The Company expects to announce an upgrade of its zinc resources at Mungana within the next few weeks, with an exploration decline scheduled to commence in April 2006 to access the Mungana orebody.

Background

Kagara Zinc Limited (ASX: KZL) is a low-cost Australian base metal producer with a strongly growing production base at its 100%-owned Mt Garnet Project and a significant portfolio of gold and base metal exploration and development projects, all located in north Queensland, Australia. Kagara is based in Perth and listed on the Australian Stock Exchange in the S&P ASX 300 Index.

Over the past 12 months, Kagara has laid the foundations for its continued strong growth as a producer of both zinc and copper concentrates from Mt Garnet Project in North Queensland. Kagara has been in production at Mt Garnet since 2003, currently producing in excess of 100,000tpa of zinc concentrate with ore sourced from the Dry River South underground mine and nearby Balcooma open cut.

In addition, with the commissioning of a new copper circuit at Mt Garnet in February 2006 and campaign processing of high-grade supergene copper ore from Balcooma during 2005, the Company will produce approximately 9,000 tonnes of copper metal in concentrate in 2005/06, rising to at least 25,000 tonnes in 2006/07.

In January 2006, Kagara announced that it had negotiated a 4-month option to purchase the nearby Thalanga base metal treatment plant for A$2 million, which it intends to utilise to treat the substantial copper resources already delineated at Balcooma (3.3Mt @ 3.9% copper). This has the potential to add production of a further 20,000tpa of payable copper metal in concentrate by September 2006 at cash operating costs forecast to be less than US$1.00/lb of payable copper.

Kagara is also well advanced with development plans for the Mungana/Red Dome base metal complex, 150km north-west of Mt Garnet, where an exploration decline is scheduled to commence in April 2006. The Company plans to fast-track development of the base metal resources at Mungana leading to a development decision on construction of a second treatment facility in early 2007 and production later that year.

The Mungana/Red Rome development has the potential to add a further 15,000tpa of copper metal production and significant additional zinc production to Kagara's portfolio, cementing its position at the forefront of Australian base metal producers.

If you would rather not receive future company information, please reply to this e-mail with the word "unsubscribe" in the subject.