Many of the results are in from the listed companies best placed to capitalise on strong gold and nickel prices. Jim Hawtin investigates.
IN the first half of the 2003 to 2004 financial year both the gold and nickel prices rebounded to heights not seen for many years.
While many old and new players were attracted back into the market, aspirations are often a lot different to solid evidence.
Despite the great commodity prices – the nickel price reached 16-year highs and is tipped to continue while gold burst through the elusive $US400 mark – an appreciating Australian dollar has not helped local producers trying to sell on the global market.
Nickel was the pick of the commodities in terms of price for the first half of the year.
Its price rose rapidly in late 2003 and early 2004, increasing from around $US12,000 a tonne to a peak of $US17,180 a tonne.
Also WMC’s sale of many of its small nickel mines around the Kambalda area allowed many players to get in on the action.
Among the local nickel producers Independence Gold was the stand out performer in terms of results.
In its latest half-yearly report, Independence increased revenue of $4.9 million from the 2002-03 half year to $33.5 million and turned around a loss of $1 million to a profit of $9.5 million.
Independence Gold’s primary interest is in nickel production and exploration, with its principal asset, the Long Nickel mine, purchased from WMC for $15 million almost two years ago.
The mine reached record production in September last year and has just been upgraded to a mine life of at least 2008.
The company’s share price has ridden the back of the nickel price jumping from 68 cents in September to more than $1.20 where it has remained since.
Tectonic Resources was another that enjoyed a strong turnaround on the previous corresponding period.
Tectonic increased its revenue almost three fold from $8.2 million to $22 million and profit seven fold over the previous corresponding period.
The company also announced a maiden dividend of 3 cents a share.
Well known local nickel miner Jubilee Mines, a revitalised Minara Resources (formerly Anaconda Nickel) and newly listed MPI Mines all roughly doubled their revenues on the back of the buoyant nickel price.
Both Jubilee and Minara were two of the most profitable WA companies.
Jubilee, with sales revenue doubling to $128.5 million and gross profit up from $29.4 million to $80.4 million continued to reward investors, declaring a record interim dividend of 20 cents a share, that was 50 per cent franked.
While Minara, debt free after restructuring last year, did not announce a dividend it said it was considering announcing one for the full-year result following a half-year net profit announcement of $57.5 million.
Mincor, which bought the Miitel, Wannaway, Redross and Mariners nickel mines at Kambalda from WMC, had revenue and profit on par with the previous corresponding period.
This was a result of mining lower grade material and the drop in tonnes from Wannaway.
Although Mincor’s profit is not tipped to increase any time soon it has more than $20 million in the bank, which could be used to improve operations or further exploration.
Hartley’s research analyst Simon Tonkin said while miners such as Jubilee and Minara revealed big profits, Independence Gold was the pick of stocks because of its relatively low share price, long mine life and high grade ore.
He said despite the size of Jubilee’s profits, the stock had a lot of exploration premium built into its share price and many investors had been using it as a proxy to the nickel price.
“Over the next couple of years they [Jubilee] will need to find something to justify their price,” Mr Tonkin said.
He said the nickel price was the key factor in the performance of most the stocks during the past half year.
And he said with world nickel stocks currently around 10,000 tonnes but predicted to drop to around 2,000 tonnes later this year, the price could go for another run.
Meanwhile the same performances were not quite replicated in the gold sector despite the increase in the US dollar gold price.
Investors have not been deterred by the strong Australian dollar, which has reduced the gold price locally despite the rising US dollar gold price.
Some of the best producers identified based on released results were gold mining giant Newcrest, Equigold and newcomer MPI Mines with its Victorian and WA gold mines.
Newcrest more than doubled profits from $15.9 million to $38.4 million despite a much smaller percentage increase in revenues.
It announced a 5 cent dividend, on par with the previous year, while its earnings per share increase 123 per cent.
Equigold posted its record interim profit of $9.7 million from revenues up 66 per cent to $51 million.
It increased its dividend to a fully franked 3 cents a share.
The result was said to be from a 67 per cent increase in gold production from its Queensland Mt Rawdon mine and its Kirkalocka project in WA.
While market newcomer, but veteran miner, MPI Mines not only performed well in the nickel sector it also looks as though it is about to reverse things in its gold business.
MPI announced earlier this year it would acquire the gold interests of its joint venture partner allowing it to spend much needed capital on the large Stall gold mine in Victoria.
Other steady performers included Croesus Mining and Dominion Mining.
Earnings per share in Dominion were up almost 360 per cent as it announced an interim profit of $600,000.
Dominion’s share price has been up as its Challenger gold mine in South Australia began producing gold in October.
Further resource upgrades may have added an extra two years.
Steady performer Croesus dropped nearly $2 million in revenue on the previous corresponding period yet managed to increase profits by 14 per cent, from $4.4 million to $5 million.
Croesus, which poured its one millionth ounce of gold last month, also announced a 1.5 cent dividend.
Sons of Gwalia posted an interim net profit of $12.2 million despite the gold division producing a solid result.
Earnings from the gold and tantalum producer’s minerals division slipped because of lower tantalum grades.
Shares in Sons of Gwalia have fallen to around $3 since highs of almost $4 in January earlier this year.
“Over the next couple of years they [Jubilee] will need to find something to justify their price.”
- Simon Tonkin
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