A fall in commodity prices and a rising Australian dollar have cut West Perth-based Kagara Ltd's earnings in fiscal 2008 by 28 per cent despite achieving record copper production over the year.
A fall in commodity prices and a rising Australian dollar have cut West Perth-based Kagara Ltd's earnings in fiscal 2008 by 28 per cent despite achieving record copper production over the year.
The company today reported a net profit of $65 million, down from the previous year's record of $89.8 million.
Despite the decline, Kagara said the net profit result reinforced the company as a low-cost, high-margin base metal producer with a diversified production base.
"The strong result was achieved despite the significant fall in commodity prices and a rising Australian dollar during the year, highlighting the value of its diversified, low-cost production base," Kagara said.
Sales revenue over the year was up five per cent to $302 million while earnings before interest, tax, depreciation and amortisation fell from $163 million to $131 million, reflecting the fall in commodity prices.
Copper production rose 44 per cent to a record 26,329 tonnes, prompting the company to increase its production forecast of the commodity by 35 per cent to between 35,000-40,000t.
Meanwhile zinc production was up slightly, six per cent, to 40,940t. Lead production fell from 11,510t to 9359t.
Over the year the zinc cash production cost was steady at US$0.55 per pound with an average realised zinc price of US$1.10/lb
Copper cash operating costs were lower at US$1.37/lb at its Mt Garnet plant higher at the Thalanga plant of US$1.49/lb, enabling the plants to, respectively, generate cash operating margins of US$1.87/lb and US$1.74/lb.
"Kagara has performed exceptionally well despite a generally tough operating environment," Executive Chairman Kim Robinson said.
"This excellent financial performance highlights the strong margins which our North Queensland operations are capable of generating, even in a lower commodity price environment."
Below is the full statement:
Diversified resources group Kagara Ltd (ASX: KZL - "Kagara") has forecast a 35% increase in copper production for the 2009 financial year after delivering a robust $65.0 million* net profit after tax for the 12 months to 30 June 2008, underpinned by the record copper output achieved during the past financial year.
Kagara said today (Wednesday) that it expected copper production to increase further to 35-40,000 tonnes for 2008/09, with the Company set to benefit from the construction and commissioning of its fourth base metal treatment plant at Mungana in North Queensland.
The bottom line financial result, while 28% lower than the record $89.8 million net annual profit achieved for 2006/07, reinforces Kagara's position as a low-cost, high-margin base metal producer with a diversified production base. The strong result was achieved despite the significant fall in commodity prices and a rising Australian dollar during the year, highlighting the value of its diversified, low-cost production base.
Sales revenue increased by 5% to $302.3 million (2007: $287.6 million) and earnings before interest, tax, depreciation and amortisation (EBITDA) were $131.1 million (2007: $163.1 million), reflecting lower metal prices. Pre-tax profit was $94.5 million (2007: $131.9 million).
The strong cash generation of Kagara's North Queensland base metal operations enabled the Company to maintain a strong financial position, with cash on hand plus receivables of $71.1 million at the end of the financial year (2007: $73.6 million).
Copper production increased by 44% to a record 26,329 tonnes of contained copper (2007: 18,344 tonnes) from the Mt Garnet and Thalanga treatment facilities, while zinc production increased slightly to 40,940 tonnes of contained zinc (2007: 38,134 tonnes) and lead production fell to 9,359 tonnes of contained lead (2007: 11,510 tonnes).
The Company achieved a zinc cash production cost of US$0.55/lb (2007: US$0.55/lb), produced against an average realised zinc price of US$1.10/lb (2007: US$1.64/lb), enabling it to maintain a healthy cash margin of US$0.55/lb of payable zinc (2007: US$1.09/lb) despite the sharp fall in the zinc price. Copper cash operating costs for the Mt Garnet copper circuit were US$1.37/lb after by-product credits (2007: US$1.58/lb) and for the Thalanga plant US$1.49/lb (2007: US$1.39). This enabled the two plants, respectively, to generate cash operating margins of US$1.87/lb and US$1.74/lb.
"Kagara has performed exceptionally well despite a generally tough operating environment," said the Company's Executive Chairman, Mr Kim Robinson. "This excellent financial performance highlights the strong margins which our North Queensland operations are capable of generating, even in a lower commodity price environment.
"The diversified nature of our production base is also an important factor, with copper now the main driver of our earnings growth and providing an excellent buffer against the current cyclical downswing in zinc prices," he continued. "With the medium term outlook for copper remaining positive and our production forecast to increase strongly again this financial year, the outlook for Kagara remains very positive.
"Importantly, the strong cash generation of our core base metal operations also provides the necessary financial capacity to support our growth objectives," he continued. "The estimated $50 million capital expenditure requirement remaining to bring the Mungana operations on stream in early 2009 is in part being internally funded and, in light of this, the Board has decided not to pay a dividend for the 2007/08 financial year.
"While this is regrettable, the Company's ability to internally fund this key development project represents an important strategic advantage in the current equity market environment, with the Mungana development set to increase our copper production and enable us to more than double our zinc production to in excess of 100,000tpa of metal in concentrate in the 2009/10 financial year," he said.
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"This will also enable us to internally fund the other exciting growth projects within our portfolio, including the Lounge Lizard Nickel Project, the Admiral Bay Nickel Project, for which a maiden resource estimate is imminent, and the large-scale Red Dome Gold Project in Queensland," Mr Robinson added.
"Each of these projects has the potential to add significant value to Kagara and to continue our growth path as a truly diversified Australian resources group," he concluded.
