17/03/2009 - 09:12

Territory books $33m half-year loss

17/03/2009 - 09:12

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Territory Resources has taken a sizeable $38 million hit to its half-year earnings with the iron ore miner reporting an interim net loss of $33.3 million.

Territory books $33m half-year loss

Territory Resources has taken a sizeable $38 million hit to its half-year earnings with the iron ore miner reporting an interim net loss of $33.3 million.

In its half-year report released today, the miner said the loss included $13.4 million in foreign exchange losses, a $15.1 million impairment charge related to its foreign exchange hedge book and impairment losses in external investments of $8.7 million.

Territory has investments in collapsed companies Matilda Minerals and Matrix Metals, and Northern Mining.

The half-year net loss compares to the previous corresponding period's net profit of $2 million.

Before the provisions, Territory reported an underlying profit of $4.76 million which was based on sales revenue of $65.5 million, up from $28.8 million.

""While it is disappointing to record another significant accounting loss, it is important to emphasise the operational improvements achieved at Frances Creek which resulted in an underlying profit for the period in review," Territory chairman Andrew Simpson said.

"Our core business has operated successfully despite the severe financial and economic storms that were unleashed during this period, including a sharp fall in iron ore prices, which impacted on all producers."

Territory said that is it continuing talks with its financiers, including offtake partner Noble Group, to implement alternative, long-term debt arrangements to replace its existing hedge and loan facilities.

The miner reported the balance of the loan owed to Noble has increased to $52.6 million, due to advances and foreign exchange movements, and is due for repayment in less than 12 months.

Territory also owes $22.5 million to its funding providers over the marked-to-market unrealised loss on foreign currency derivatives.

The company had $3.5 million in cash at the end of the reporting period.

 

 

Part of the announcement is below:

 

 

Australian iron ore producer, Territory Resources Limited (ASX: TTY) today announced a net loss after tax of $33.341 million1 for the half-year ended 31 December 2008. The loss includes $38.097 million in asset impairments and one-off items associated with the Company's foreign exchange hedge book and external investments including Matilda Minerals Limited, which overshadowed an otherwise positive first half performance by Territory's iron ore operations.

Before including the provisions, the Company posted an underlying profit2 of $4.756 million (2007: $2.037 million), which was based on sales revenue of $65.5 million for the first half (2007: $28.8 million). This reflected the significant operational improvements and enhancements achieved at its 100%-owned Frances Creek Iron Ore Mine in the Northern Territory.

Commenting on the results, Territory's Chairman Andrew Simpson said: "While it is disappointing to record another significant accounting loss, it is important to emphasise the operational improvements achieved at Frances Creek which resulted in an underlying profit for the period in review. Our core business has operated successfully despite the severe financial and economic storms that were unleashed during this period, including a sharp fall in iron ore prices, which impacted on all producers.

"Despite these challenges, Territory maintained a fully sold position for all of the iron ore produced at Frances Creek and continued to enhance its reputation in the market as a stable and reliable supplier of premium quality, high-grade lump and fines ore. We also made further progress towards the targeted annualised production rate of 2Mtpa, reducing costs and optimising our operations, with Frances Creek generating a modest cash operating surplus and underlying profit for the period - a commendable achievement under the circumstances."

"The net loss for the period was a result of foreign exchange losses and impairments totalling $28.6 million being incurred on our hedge book following the sharp fall in the Australian/US Dollar exchange rate, together with a further impairment of listed equity investments of $8.7 million as a result of the continued decline in global equity markets and the administration of Matilda Minerals," Mr Simpson added.

The one-off items not related to operations include foreign exchange losses of $13.4 million, a $15.1 million impairment charge associated with the foreign exchange hedge book, as well as an $8.7 million impairment of Territory's investment in Matilda Minerals Limited (ASX: MAL), Matrix Metals Limited (ASX: and Northern Mining Limited (ASX: NMI).

The net loss after tax of $33.341 million, which compares with a net profit of $2.037 million for the previous corresponding half, translates to a loss per share of 12.6 cents. Total sales revenue for the half year was $65.5 million (2007: $28.8 million), with production costs of $56.9 million (including Depreciation and Amortisation charges of $9.5 million).

The first half result was based on production of 796,000 tonnes of high-grade lump and fines ore, with the Frances Creek operation completing shipments totalling 1.395 million tonnes of product through the Port of Darwin from start-up through to 31 December 2008.

Operations Update

Territory remains on track to complete the ramp-up of the Frances Creek operation to an annualised rate of 2Mtpa during 2009, with a number of operational and strategic enhancements now in place including a significant bank of operating experience built up for mining and processing during the northern Australian wet season.

Key recent enhancements include the completion of new mine optimisations that has enabled a reduction in the mining fleet from three to two effective from 1 January 2009, as well as a greater focus on ore production activities to facilitate a further reduction in operating costs.

A lower capital cost mobile wet processing plant commenced operations in December 2008 to improve production levels during the wet season, instead of the originally contemplated standalone wet crushing plant. A third crushing and processing plant was commissioned in January 2009 to underpin production targets.

"Under our recently appointed Chief Operating Officer, Andy Haslam, the team at Frances Creek is continuing to make great progress in optimising the mining and processing operations, reducing costs and striving for excellence in every aspect of our operations," Mr Simpson commented. "Everyone is extremely motivated and we are on track to driving cash operating costs down during the next few months."

"While our focus is very much on reducing all non-essential expenditures, we maintained a substantial exploration effort during 2008, which delivered success in a number of areas. We are confident that ongoing exploration in 2009 will replace mined resources, and the exploration team is well placed to achieve our objective of delineating an additional 5 million tonnes of resources over the next few years."

Market Update

Through the Company's exclusive marketing agreement with Noble Group, Territory has been able to maintain a fully sold position with virtually no interruptions to its shipping schedule for Frances Creek production despite the extremely challenging prevailing global conditions. During this period, iron ore prices fell from their highs of US$114/tonne for lump and US$77/tonne for fines in August 2008 to a low of US$59/tonne for lump and US$44/tonne for fines in November 2008.

"We are clearly seeing a continuation of this very uncertain and volatile global market environment into 2009," Mr Simpson said. "The jury is still out on the full extent of the impact on Chinese economic growth, although some forecasters are predicting that Chinese growth will recover rapidly in 2010 as the full impact of the recently announced stimulus packages kicks in, before settling back to a longer-term growth level of 6-7% per annum."

"Similarly we have seen some recovery in the iron ore market in China during the first few months of 2009 and we remain hopeful this can be sustained during the balance of this year."

"With our strong market position, geographic and infrastructure advantages and premium quality, highgrade product, Territory is in many respects ideally placed to benefit from this recovery. We are working very hard to enhance our position in this regard, and a Territory management team headed by myself will be in China this week to meet with key customers with an expectation of finalising long-term sales commitments, benchmarked against contract prices for Yandi lump and fines ore."

Restructure of Debt and Hedging Agreements

Territory is continuing discussions with its financiers with a view to implementing alternative, long-term debt arrangements to replace its existing hedge and loan facilities. With the support of its hedge facility provider and Noble Group, the Company expects to achieve a satisfactory resolution in the near-term.


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