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Attention ASX Company Announcements Platform 1
Attention ASX Company Announcements Platform.
Lodgement of Open Briefing.
M.I.M. Holdings Limited
410 Ann Street
Brisbane QLD 4000
Date of lodgement : 27-Aug-2001
Title : Open Briefing. M.I.M. Holdings. June 2001 Profit & Outlook
corporatefile.com.au
M.I.M. Holdings Limited today reported a net profit after tax before significant items of
$104.8 million. MIMs second half profit of $73.6 million was well ahead of the first half
of $31.2 million. What drove the improvement in the second half and can it be sustained?
Managing Director Vince Gauci
Following the smelter interruptions in the December half we achieved higher and more
stable production during the June half. As we expected, that led to a higher June half
profit. As it turned out, the US$ metal prices were lower but so was the value of the A$.
Sales volumes for all of our commodities improved. That was helped by further
efficiency improvement in our operations, which has been ongoing for a number of years.
We are confident about our ongoing operating performance and expect further
improvements for some time to come.
corporatefile.com.au
Strong EBIT increases from coal (up $156.1m) and copper (up $132.4m) were offset by a
loss from currency hedging (down $202.3m) and lead-zinc EBIT (down $30.3m). Can
you quantify the impact of currency hedging on your results and indicate what impact it
will have in the future?
Vince Gauci
The lower Australian dollar was a benefit to the company, but we didn't fully participate
in the fall due to our currency hedging position. In the year ended June 2001, we
benefited by approximately $400 million from the lower exchange rates. However, this 2
was offset by approximately $200 million in currency hedging losses and by about $100
million in higher US$ denominated costs such as treatment charges and transport.
It is difficult to quantify the future impact of hedging because that will depend on
movements in the A$ exchange rate but we have US$742 million of revenue for
Australian operations hedged at US$0.64 for 2001/2 and we have other hedging
designated out to the year 2006.
corporatefile.com.au
What caused the 12 percent drop in cash flow from operating activities to $416.7 million
when EBIT was up 9 percent to $295.5 million?
Vince Gauci
The cash flow from operating activities fell due to a couple of factors. We had higher
inventories at the end of the year and we had exchange related increases in the interest
payments on our loans.
The inventory increases occurred at Alumbrera (MIM 50%) where we ran up medium
grade stockpiles in accordance with our mine plan. That build up has essentially stopped
and the stockpiles will be treated towards the end of the life of the mine.
Inventories also rose at Mount Isa, due to the refurbishment of the lead smelter which is
now complete and we expect to exhaust the resultant lead concentrate build up by the end
of this financial year.
There was also a build up of copper anode stocks due to the high copper smelter
production in the final quarter. Although there is sufficient capacity at the copper refinery
in Townsville there is a four to six week lag from processing the anode to actually
producing refined metal.
corporatefile.com.au
Your debt rose to $1,865 million from $1,565 million over the year due largely to the
Australian dollars weakness. Most of your debt is denominated in US$. Gearing (debt to
debt plus tangible net worth) is now 44.3 percent (previously 41.1%). Can you reduce
debt at the current commodity prices and exchange rate?
Vince Gauci
It is true that the increase in gearing is due almost entirely to the decline in the Australian
dollar, which was at a US50.76 cent exchange rate at the June balance date.
The facts of the matter are that the current US dollar prices for copper and zinc are
extremely low and although we are very confident about continuing to improve our
operating performance, the rate of debt reduction will largely depend on recovery in
prices.
There is little chance that prices will remain at these levels for too long because very few
producers of copper and zinc can make profits at these prices.
corporatefile.com.au
Your capital expenditure declined further to $382.0 million from $418.2 million in 3
1999/00. You have indicated that it will be about the same level in the current year
although spending on major projects will fall. What are the major items of capital
expenditure?
Vince Gauci
Our major capital projects are all but completed. During this year, however, we will
spend some sustaining capital to maintain current levels of production.
Major capital expenditure items include:
some carry over expenditure on the George Fisher lead-zinc mine project at Mount Isa,
and an increase in flotation capacity of the copper concentrator also at Mount Isa,
replacement of the longwall at Oaky Creek No.1 with a new longwall in the south-east
section of the mine,
crushing and beneficiation plant and expansion of the gold plant at Ravenswood for
processing ore from the new Sarsfield mine,
essential capital on the two zinc smelters in Europe while we seek an exit, and
the building of additional capacity in the Alumbrera processing plant, to be funded from
project cash flows, to increase annual production and further reduce costs.
We have our usual annual level of exploration expenditure and, in addition, $25 million
in exploration and upgrading of coal reserves to improve our already strong reserve
position.
corporatefile.com.au
The net profit after significant items of $104.6 million includes both writedowns and an
R & D tax benefit. What do the R&D tax benefits relate to and will they continue to
swing from year to year?
Vince Gauci
Last year there was an R&D tax benefit of $20.4 million for the period up to 1990. The
R&D tax benefit this year relates to R&D in the years from 1991-1998. That was
principally development of the ISASMELT technology and the IsaMill fine grinding
process. Negotiations between MIM and the Australian Tax Office have only just been
completed.
We will claim some R&D tax benefits in future years relating to expenditure after 1998
but it won't be as great as the amounts for the earlier years.
corporatefile.com.au
Sales volumes were up significantly for coal (up 13%), copper (up 11%) and zinc (up
10%) while silver was down (16%). What production changes do you expect for
FY2002? 4
Vince Gauci
We expect sales volumes to be higher for all commodities although the increases won't
be as great as last year. We expect copper metal production at Mount Isa to reach
235,000 tonnes this year (207,000 tonnes in FY2001) on the way to our target of 250,000
tonnes.
We expect lead-zinc production at Mount Isa to improve again.
We expect to increase coal production and sales but the extent of the increase is subject
to Queensland Rail's capacity to handle the volume.
corporatefile.com.au
What mine life do you expect from your Collinsville, Newlands & Oaky Creek coal
mines (all MIM 75%), the Mount Isa copper and zinc mines, the George Fisher and
McArthur River (MIM 70%) zinc mines and the Ernest Henry (MIM 51%) and
Alumbrera copper/gold mines?
Vince Gauci
We have developed mine plans at our major operations to mine for the next decade or so.
In coal were proving up additional reserves at our mines and this year we've taken up
some extensive tenements around our current coal mines with the aim of adding to that
reserve base. Our coal tenements now cover more than 3,600 square kilometres in central
Queensland which is a quadrupling of our ground in a year. Away from our current
operations, we have two significant but undeveloped steaming coal resources at
Rolleston and Wandoan.
At Mount Isa we have very healthy resources in both copper and lead-zinc. Underground
reserve positions are never greater than a few years because you add to reserve positions
as the mine progresses and that is the case with Mount Isa even though we know it is a
long life operation.
We have developed mine plans for the Mount Isa copper ore bodies covering
approximately a decade and this year we intend to convert more resources into reserves.
We're confident we can achieve that by the end of this financial year.
At Mount Isa we also have open cut potential for copper and we're currently trying to
identify the size of those reserves. The open cut will be developed when underground
mining ceases. We've also got an extensive exploration program around Mount Isa
seeking to utilise the infrastructure in the longer term.
Our lead-zinc reserve and resource position is strong. We have a major lead-zinc resource
at George Fisher where the mine plan is based on a portion only of a very large resource.
The mine life at George Fishe