Shares in Territory Resources surged higher today after the iron ore miner reported a turnaround in first half earnings to book a net profit of $13.7 million.
Shares in Territory Resources surged higher today after the iron ore miner reported a turnaround in first half earnings to book a net profit of $13.7 million.
The result compares with the $33.3 million net loss incurred in the previous corresponding period. That loss was due mainly to foreign exchange losses and asset impairments.
Territory said today the net profit result for the six months to the end of December reflected improved iron ore prices, the success of the company focusing on increased production and reduced costs at its Northern Territory iron ore operations, together with a reversal of a prior impairment of the Monarch debt totalling $3.8 million and gains on foreign exchange transactions of $4.7 million.
Shares in Territory climbed three cents, or 19.3 per cent, to 18.5c at 12:03 AEDT.
The first half profit was struck on sales revenue of $82.0 million (1H FY09: $65.5 million) representing the sale of 1.196 million tonnes of high-grade lump and fines to Chinese customers.
Production of 1.066 million tonnes (1H FY 09: 796,000 tonnes) of high-grade lump and fines ore was achieved for the period from Territory's 100%-owned Frances Creek iron ore operation.
The major profit rebound directly reflects the significant increase in export volumes and revenues together with a substantial decrease in production costs compared with the previous half year.
Territory completed 15.7 shipments of iron ore to China during the period and continues to maintain its fully sold position through its strong association with Noble Resources Ltd ("Noble") in Hong Kong. The 16th shipment was completed on 2 January 2010.
The Company generated free cash flow of $11.2 million for the first half (1H FY09: $8.0 million), with ore production focused on the Thelma Rosemary, Ochre Hill and Helene 3, 5 and 6/7 open pits.
The bottom line profit translated to earnings per share of 5.17 cents (1H FY09: loss of 12.6 cents). The net earnings of the Company for the period have been applied to the repayment of the Noble debt.
"This is an excellent result, reflecting continued improvements in our operational performance as well as a successful first stage restructure of the Company's financial position and balance sheet," said Territory's managing director, Andy Haslam.
"Our entire team is working together in unison towards the common goal of increasing production to a steady-state level of 2.2Mtpa and maintaining our cost of production below $50/tonne," Mr Haslam said.
"For a boutique operation, that positions us very attractively on the global cost curve and means we are well placed to benefit from the recent increase in iron ore prices."
In September 2009, Territory concluded an agreement allowing for the assignment of debt to Noble relating to the Company's previous foreign exchange hedge book and for an extension of the Noble debt to 31 October 2010.
Territory and Noble have now agreed to a further extension of the Noble debt to 31 March 2011, or such later date as agreed by Noble. During the first half, Territory reduced the debt under the Advanced Payment on Sales facility, from $20.4 million at 30 June 2009 to $7.4 million at 3 December 2009.
In addition to the Advance Payment on Sales facility and subsequent to the end of the period, Territory finalised an agreement with Noble consolidating the Company's loan facilities into one debt totalling US$43.4 million.
During the period, Territory also received a $456,000 deposit for the sale of the Company's stake in India Resources Limited (with a remaining balance of $1.5 million to be received in the second half) and a nonrecourse payment of $2.96 million from the Administrators of Monarch Gold Mining Company Limited ("Monarch").
On 26 February 2010, the recapitalisation of Monarch was completed, which entitled Territory to become the sole beneficiary of the Minjar Project trust from which a payment in excess of $5.7 million was received by Territory. Total funds recovered to date amount to $8.7 million.
The Company stands to recover the balance of the $16.8 million owed by Monarch, subject to the recapitalisation transaction completing over the course of the next two years.
Market Update & Growth Strategy
Iron ore prices continued to strengthen during the first half, with the spot price reaching US$81.50/tonne for lump and US$70/tonne for fines in December 2009. Spot iron ore prices are now approximately 90% above the benchmark price and Territory is maintaining strong cost control measures to minimise any impact of variations between the Australian and US dollars.
"Recent reports are indicating an additional increase for 2010 iron ore benchmark prices, which if it eventuates, provides further good news for the iron ore sector and will reflect the prevailing prices seen in the spot market for some months now," said Territory's chairman, Mr Andrew Simpson.
"We are continuing to benefit from the strength of the spot iron ore market, with prices enabling us to realise a substantial cash margin on our production," Mr Simpson said. "As previously foreshadowed, our strategy is to utilise this strong cash generation capability to extinguish our corporate debt as quickly as possible, while at the same time, supporting our growth and acquisition strategy.
"As outlined last year, we firmly believe that it is now time to expand our geographic footprint and establish a resource base for the future, underpinned by our market reputation and the expertise we have developed at Frances Creek," he continued.
"This strategy, which is supported by Noble, is already well underway and is being spearheaded by a recently established internal Business Development team.
"At the same time, we are continuing to focus on opportunities to extend the operational life at Frances Creek through ongoing assessment of the potential to develop a sales program for high-manganese iron ore deposits in the region and a review of all lower grade iron ore deposits in the area.
