Hi TTCYes I agree this does become a bit long winded doesn't it?...

Hi TTC

Yes I agree this does become a bit long winded doesn't it? But its the nature of the beast due to the complexity when you are dealing with moving exchange rates and metal prices and throwing hedging in to confuse everything!

I agree there were a number of factors that contributed to Pasminco going under but the main one was low metal prices and that is what we are dealing with at the moment.

I guess the point I am trying to make in a nutshell is that is all about cash burn at the moment if you're a Zinc miner. And given PEM's cash burn at the moment they are going to find it very tight with the amount of cash they've got and the limited amount of funding through asset sales, debt, or equity raising they have available to them to keep their operations running (without resorting to cashing in the hedges which would force the current operations to close)

Don't get me wrong - Both PEM and CBH are sailing very close to the wind at the moment, and if the current metal prices for Zinc and Lead remain, they are both marginal operations. However CBH has 3 times as much cash on hand ($125m v $42m) than PEM and a large supportive shareholder which PEM doesn't - Those are two incontrovertible facts which you cannot deny.

Also plugging in last nights Zinc and lead prices into my calculations means PEM will lose $40m over a full years production (inclusive of hedging gains as previously shown in my calculations). So there's your $42m gone.

Also Beltana is not the cash cow that you assume in that yes they have paid the mining costs ($0.43 per pound) but they still have to pay the treatment charges ie $0.42 per pound. So with Zinc at $0.7325 the cash margin (not profit as it costs them $0.85 in total to mine it) is only $0.31. However its all cash so they should try to ship it out as soon as possible. If they manage to sell 7k tonnes a quarter it may free up $22m in cash (But remember it cost them $84.4m to mine it ie 89.1k tonnes stockpiled = 196.4m pounds * $0.43 direct cash costs = $84.4m - so they're only getting money back (at a loss) which they've already spent)

Now to answer your "if Beltana is losing money with 31% open pittable how can anyone else make money"

Two reasons:

1. Because the Beltana ore is different the treatment charges are much higher by about 33% (ie $0.42 vs $0.31).

2. Beltana gets no Lead/Silver revenue/credits which traditional Zinc mines like CBH's Endeavor and PEM's Broken Hill get (which reduces their costs by around $0.20 to $0.30 a pound)

So to surmise, Beltana CAN be unviable while other mines are viable.

Putting a mine on Care and Maintenance is not like flicking off a light switch, asset values have to be written down (as mine is not a going concern), redundancies for staff etc etc. For this very reason Miners tend to avoid doing this like the plague, particularly when its your only operating mine. and then there's the cost of firing it back up etc. So this would erode their cash position significantly.

Certainly there is value in their hedge book at the moment (though it is reduced significantly by the AUD puts now almost out of the money) but if they cashed that in they would have to wave the white flag (care and maintenance) on their current operations which I don't think the market would like too much (see what happened to AIM when that happened)

I can't speculate on what ABY or Xstrata are thinking but surely they can wait 12 months or so - the copper prospect isn't going to go UP in price in that time.

So to conclude TTC, you have your position and I have mine, good luck with your holding and lets hope for all the Zinc/Lead miners sake the two respective metals have a sustained rebound and the weakness in the $AUD is sustained, PEM hits $3 and CBH $1.

If you want an example of how a turn around in commodities can help a stock look at OMH. 14 months ago was (it's had a two for one split) $0.20 cents a share. Was producing manganese at $2.40 a DMTU and getting $2.20 - not very sustainable - had to have a 1 for 2 rights issue to keep the whole ship going. Manganese goes back up to currently around $18 a unit, OMH touches $5.80 recently though due to the commodity sell off is now only $3.88. Not a bad recovery though!

Cheers

J.