Mt Gibson announces $23.5m net profit, up 74%

West Perth-based iron ore company Mt Gibson Iron Ltd has announced a net profit of $23.5 million for the year ended June 30 2006, a 74 per cent increase on the previous year's net profit of $13.5 million.

The net profit was benefited from an end of year taxation benefit of around $7 million, which the company says recognises tax losses available for use by Mount Gibson.

This benefit boosted the company's net profit, after reporting an operating profit of $16.1 million, down from $22 million achieved in the 2004-05 period.

The company attributes its downturn in operating profit to its decision to engage in waste mining at the company's Tallering Peak project, which allowed it to achieve the sustainable ore production level of 3 mtpa for the remaining life of the mine.

Revenue also decreased by 5 per cent as the mine embarked on major cut-backs of existing open pits, resulting in a 26 per cent decrease in ore tonnes sold. In addition to this, the cost per tonne sold increased by 33 per cent due to the company's inability to access ore while significant open pit cut backs were in progress, as well as increases in costs of fuel, labour, tyres and consumables.

The full text of a Mt Gibson announcement is pasted below

HIGHLIGHTS

- Increased net profit after tax to $23.5 million, in line with expectations

- On target to achieve 3 Mtpa ore production target

- Invested in cut-backs of open pits facilitating an increase in iron ore production, subsequent to financial year-end achieved record production levels of iron ore mined at Tallering Peak :

o July 2006: 340,958 tonnes

o August 2006: 413,529 tonnes

"Our decision to focus on improving access to deeper iron ore zones has resulted in record production levels in July and August 2006 which put us on track to achieve 3Mtpa in production at Tallering Peak."
- Luke Tonkin, Managing Director, Mount Gibson Iron

As announced by Mount Gibson during December 2005, development rates at Tallering Peak needed to increase substantially to sustain 3 Mtpa of ore production through to the end of mine life.

Waste mining during the second half of the 2005 / 2006 financial year prepared Mount Gibson for growth with the company focusing resources on improving access to deeper ore zones, enabling Tallering Peak to achieve sustainable ore production of 3 Mtpa for the remaining life of mine. This operational imperative resulted in a decline in financial performance for the 6 months to 30 June 2006 compared with the 6 months to 31 December 2005. 403,000 tonnes of ore was mined and 450,000 tonnes of ore sold for the 6 months ended 30 June 2006 resulting in a decline in revenues from ore sold. Consequently the net profit after tax for the 6 months ended 30 June 2006 was $1.4 million compared with $22.1 million for the 6 months to 31 December 2005.

Production rates at Tallering Peak for the 12 months ended 30 June 2006 compared with the 12 months ended 30 June 2005 were:
- waste mined increased by 73%;
- ore tonnes mined decreased by 42% and
- ore tonnes sold decreased by 26%.

Revenue from the sale of ore decreased by 5% in 2006 from the previous year as the mine embarked on major cut-backs of existing open pits. This resulted in a decrease of 26% in ore tonnes sold, which was partially offset by an increase of 29% in the realised selling price per tonne of ore sold over the previous year.

Total cost of sales decreased marginally over the previous year whilst the cost per tonne sold increased by 33%, which is directly related to the Company's inability to access ore whilst significant open pit cut backs were in progress. The increase in cost per tonne sold can also be attributed to significant cost increases in fuel, labour, tyres and consumables in line with cost increases experienced by all mine operators in the Western Australian mining sector. It is anticipated that the cost per tonne sold will decrease as the mine has achieved 3 Mtpa rates.

These results include an income tax benefit that reflects the recognition in the current period of tax losses available for use by Mount Gibson.

During the financial year, Mount Gibson incurred $54.2 million (2005: $24.1 million) in waste development expenditure of which, $35.5 million was incurred in the 6 months ended 30 June 2006. In accordance with its usual accounting practice, waste development expenditure for the period has been capitalised in Mount Gibson's balance sheet and will be amortised over the expected life of the mine. Mount Gibson's focus on substantially increasing waste development combined with lower ore sales as a consequence of restricted access to ore during the 6 months ended 30 June 2006 reduced cash on hand to $4.5 million.

As a result of the open pit cut-back work undertaken in the six months to 30 June 2006, Mount Gibson recently advised that Tallering Peak had achieved a record 340,958 tonnes of ore mined during the month of July and since then has achieved a further record 413,529 tonnes of ore mined for the month of August.

Given the encouraging infill drilling results below the current pit floor and the mine's demonstrated ability in July and August 2006 to achieve 3 Mtpa ore production rates, Mount Gibson is confident of producing 3 Mtpa of ore in the 2006/07 financial year.