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cashed up zinnie lookin for deals Zinifex's 2007 Profit May Beat Last Year's Record on Prices

By Chia-Peck Wong and Josie Ling

Nov. 17 (Bloomberg) -- Zinifex Ltd., the world's second- largest zinc producer, expects profit this financial year to surpass last year's record because of higher metal prices.

Net income in the year ending June 2007 will beat last year's A$1.1 billion ($843 million), Chief Executive Greig Gailey said in an interview today. He didn't give an estimate.

Prices of zinc, used to make rust-resistant galvanized steel, have more than doubled in the past year, reaching a record closing price of $4,515 a ton on Nov. 9 because of demand from China. The metal may surpass $5,000 a ton by year end, Macquarie Bank Ltd. said.

``If zinc prices remain where they are today, and we've got another six months of trading ahead of us, we would expect to easily beat that in the current fiscal year,'' Gailey said today in an interview. ``Fundamentals look exceptionally good.''

Zinifex is among mining companies posting record profits following a rally in metals prices. Net income may rise 34 percent to $1.47 billion in the year ending June 2007, according to the median estimate of 13 analysts surveyed by Thomson Financial. Vedanta Resources Plc., India's largest copper and zinc producer, said yesterday first-half net income quadrupled.

Prices of industrial metals have soared in the past three years partly as China's booming economy stokes demand for the raw materials needed for factories, cars and appliances. Nickel has more than doubled and copper has risen 51 percent this year. China's economy expanded 10.4 percent in the third quarter.

Stockpiles Dwindle

Zinc inventory tracked by the London Metal Exchange fell 550 metric tons, or 0.6 percent, to 93,025 tons, the exchange said yesterday in a daily report. That's the lowest since April 1991.

``Zinc looks as though it's running out,'' said Adam Rowley, a London-based analyst with Macquarie said Nov. 7.

The global market had a production shortfall of 304,000 tons in the nine months through September, the Lisbon-based International Lead and Zinc Study Group said Nov. 15.

``If stockpiles continue to deplete at the current rate, they will be exhausted early next year,'' Gailey said.

Melbourne-based Zinifex is looking to buy mines or companies outside Australia and increase production of other metals as well as zinc.

``We currently produce zinc, lead, copper, silver, gold and are interested in any of those metals,'' he said.

Takeover Targets

Takeover targets in Australia are limited because of a lack of independent, large-sized companies, Gailey said. Zinifex is not keen to acquire domestic rival Kagara Zinc Ltd.

``Kagara is probably a bit small for us. Secondly, Korea Zinc is already a shareholder,'' he said.

Kagara Zinc, based in Perth, said last week it has been ``informally approached'' by a number of interested parties. Korea Zinc Co., the world's biggest producer of the metal, holds 13.7 percent of Kagara, according to an exchange filing in June.

Zinifex itself may be acquired because its shares trade at lower price-to-earnings multiple, compared with those of bigger rivals, Gailey said. Zinifex stock, which has more than doubled this year, trades at 6.7 times earnings, compared with 26 times for Korea Zinc.

``If someone wants to buy, the only issue and debate is the price. We're undervalued and we would certainly be looking for a substantial premium above our current stock price,'' Gailey said. Mining companies ``are all cashed up.''

Zinifex is the best-performer in the 17-member Standard & Poor's/ASX 100 Resources index this year, with a rise of 114 percent. BHP Billiton Ltd., the world's biggest mining company, ranks sixth.