Production disappointing but at last signs of improvement
September nickel quarter production of 7,094t (up ~50% QoQ) was below Citigroup Investment Research’s expectation of 7,500t. Cobalt production was 476t.
The company stated that after the plant failures that affected July production, record operating results were reported in both August and September. Citigroup Investment Research believe the rate achieved during these months was ~36ktpa implying that only ~1,100t were produced in July.
The good news is that this record rate of production has persisted into October. If it is maintained for the whole of the December period not only would Citigroup Investment Research’s forecast of 8,500t prove to be conservative but also management would be able to claim that the quantum shift has finally been made. A further implication would be reduced maintenance costs.
Cash on hand was $75m after ~$23m was paid out in dividends and unspecified amounts spent closing out financing of the old mining fleet and asset purchases.
Nothing significant was reported from the various exploration JVs and the company reiterated that it expects to establish a small heap-leach operation using stockpiled mill discharge material by the end of CY06.
The lower than expected production resulted in a ~4% reduction in Citigroup Investment Research’s CY05e NPAT to $70m and a 1.7% reduction in their target price. The recommendation has been retained.
MRE Price at posting:
0.0¢ Sentiment: None Disclosure: Not Held
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