Ferrets Stock to Watch: SMC GOLD LTD
08:49, Wednesday, 25 October 2006
EXPLORER'S NEW DIRECTION IS TAKING IT TO CHILEAN COPPER
Sydney - Wednesday - October 25: (RWE Aust Business News)
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OVERVIEW
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Keep your eyes on burgeoning copper/gold explorer SMC Gold Ltd
(ASX:SMO) for a possible name change.
With newcomers joining the board, the company appears to be
focusing more on copper in the home of one of the world's biggest
producers - Chile.
Much of the action has been on the production of gold in the
famous old gold fields of Charters Towers in Queensland.
SMC Gold produced a positive quarterly report this week with
good production and earnings figures.
Its shares have done better since new chairman Hugh Callaghan
(formerly MD of Riversdale, and previously General Manager - Copper for
Xstrata) came aboard four months ago, almost the doubling the share
price.
A new management team is now in place, and expansion plans are
progressing very well.
One avid supporter is ABN Amro Morgans.
SMC Gold already owns and operates the Cinabrio underground
copper mine and Punitaqui processing plant near the town of Ovalle,
400km north of Santiago in Chile.
The Punitaqui mill currently processes about 0.3Mtpa of copper
ore to produce about 3,200t of copper in concentrate per annum.
SMC is actively exploring on a range of copper and gold bearing
tenements in the Cinabrio region to further increase its resources base
to justify further plant expansion.
SMC has appointed a new executive and management team following
an extended period of underperformance.
Key appointments include a new managing director and general
manager of operations in Chile, who are responsible for achieving the
company's objective of introducing a "focus on planning and execution
against budget with rigorous accountability for performance".
Michael Fischer was appointed as managing director in August,
and has spent most of his time on-site in Chile, completing the
restructuring of the operational management team.
His breadth experience in Australian, PNG, and South African
base and precious metals mines is extensive and brings proven and
impeccable credentials in senior management, with a focus on disciplined
planning, budgeting, execution and control of strategic outcomes.
In August, the company also appointed Steven Playford as general
manager of the Punitaqui operations.
This represents a return to South America for Mr Playford, whose
career included a spell working for a large mining contractor in the
continent.
SMC Gold's focus in the short term is on the expansion and
improvement of the processing plant at Punitaqui.
SHARE PRICE MOVEMENTS
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Shares of SMC slipped 2c to 19c yesterday. Rolling high for the
year has been 21.5c and low 7.2c. The company has 509.9 shares on issue
with a market cap of $96.8 million.
Meanwhile the long overdue expansion of the Punitaqui mill is in
progress with capacity now scheduled to reach 1,250tpd by December,
following the commissioning of a new primary jaw crushing circuit.
A further capacity increase is expected following the
commissioning of a rougher tail regrind circuit, due for completion by
February.
On its 2007 earnings outlook, the challenge for SMC lies in
capitalising on its relatively low production cost at its Chilean
operations while the copper price remains high, to position itself for
when the copper price retreats.
The company's target of achieving a 1,250tpd throughput with
greater than 80 per cent recovery and more than 25 per cent concentrate
grade by February will provide a significant improvement to earnings and
will fund the company's goals of aggressive exploration and growth.
The new management has held itself accountable to achieving this
goal, according to ABN AMRO.
Looking back, SMC recorded a net loss of $500,000 for the
financial year ended June 30, despite a 7.6 per cent increase in revenue
to $20.7 million.
The company invested $8.5m in plant and mine capital during the
year and in addition returned $2m in debt to financiers.
However, the company made an unaudited net profit of $3.3m in
the last quarter, reflecting increased copper production during the
quarter and the sustained high copper price.
Cash balances at the end of the year were $1.3m.
SMC is well positioned to capitalise on high sustained copper
prices and the opportunity to reduce its production costs by improving
economies of scale following the expansion at Punitaqui.
The company enjoys relatively low mining costs due mainly to the
low cost of labour and the simplicity of the current operation at
Cinabrio.
However, these will come under some pressure as capital will be
required to expand the operation, take it to greater depth and bring the
mine in line with Australian operating standards.
BACKGROUND/OUTLOOK
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SMC Gold Ltd joined the Australian Stock Exchange list in June
2001.
The company has indicated that production of gold in Queensland
is ceasing at Charters Towers.
The company has recently set-up a separate project team to
actively review and progress value enhancing strategies for the
Australian assets.
The company has a number of exploration leases as well as an
option over the mill at Rishton in Queensland.
SMC Gold will shortly be announcing plans as to how it will
manage this aspect of the business, and how this will affect shareholder
value.
"We are looking to unlock value from these assets, and we will
formally announce our Australia strategy in early calendar 2007," Mr
Callaghan said.
"Management is confident that we will have a number of options
that are value accretive for our shareholders."
SMC says the copper industry is undergoing a period of exciting
demand and supply dynamics; with the outlook for copper as good as it's
been in several decades.
With extensive supply side disappointments and robust demand,
this environment is expected to continue for some time.
And Chile is an excellent market in which to develop our copper
interests.
"In Chile, we will continue to focus our attention on expanding
production, reducing costs, and securing additional projects as part of
a project pipeline to underpin continued growth in shareholder value,"
Mr Callaghan added.
ENDS
Copyright © 2006 RWE Australian Business News. All rights reserved.
SMO
smc gold limited
