update from cir

From egoli:
CitiWarrants: Zinifex Ltd (ZFX) - Production Downgrade
31/01/2007

Stock Focus

ZINIFEX LTD - Production Downgrade, But Yield And Restructuring Key

Mixed DecQ Production — Mine production was up 5% to 143kt driven by record Century throughput, but offset by 2% lower metal production following roaster outages at Clarksville. Sales were also 4kt below production at Clarksville and Budel driven by auto sector weakness and stock build pre-maintenance. CIR maintain their Buy recommendation with a new target price of A$21.00/share.


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Earnings Downgrade — Interim estimate trimmed 5% to A$745m on inventory build and production issues at Clarksville. Lower NPAT and working capital build has reduced our dividend by A30¢ to A90¢/share. FY07 estimate also downgraded 3% to A$1.75b due to the ongoing roaster issues at Clarksville.

Zinc Still the One — Although concerned by the sudden spike in Chinese zinc exports, CIR believe this is only a data point and expect the market to remain in deficit in 2007 with a price forecast of US$2/lb. Zinifex also expect premia to more than double in 2007 to US$260+/t in the US and US$300+/t in Europe.

Positive Exploration Results — Encouraging high-grade Rosebery exploration results to the north should increase resources and provide production flexibility from mining an additional lens. Drilling of the Page Creek deposit on the Century lease has also intersected mineralization, but assay results are pending.

Restructuring Upside — In addition to the favoured zinc leverage, attractive yield and continued positive news flow on exploration, CIR expect the spin-off of the smelter assets with Umicore to un-lock further value in Zinifex through 2007.