Diversified resources group Kagara Ltd (ASX: KZL) has reinforced its position as a low-cost, high-margin
base metals producer, today announcing a A$35.9 million net profit after tax (2006: A$38.9 million) for the
6 months to 31 December 2007 despite the significant pull-back in metal prices seen during the latter part of
2007.
Kagara said today (Wednesday) that the solid financial result was underpinned by strong operating margins at
its flagship North Queensland base metal operations, where a combination of higher production volumes,
particularly in copper, high grades and significant by-product credits contributed to low cash operating costs.
Sales revenue increased by 22% to $150.8 million (2006: $123.9 million) and earnings before interest, tax,
depreciation and amortisation (EBITDA) were $65.3 million (2006: $82.2 million), reflecting lower metal
prices. The net profit translated to earnings per share of 16.7 cents (2006: 19.6 cents).
Kagara’s North Queensland base metal operations generated net cash flow of $85 million for the first half,
providing a strong foundation for the Company’s aggressive organic growth and exploration programs.
Copper production increased by 76% to 11,409 tonnes of contained copper (2006: 6,472 tonnes), while zinc
production increased by 9.5% to 22,848 tonnes of contained zinc (2006: 20,869 tonnes) and lead production
fell by 6% to 6,150 tonnes of contained lead (2006: 6,530 tonnes).
Kagara achieved a copper cash production cost of US$1.45/lb (2006: US$1.49/lb), against a realised copper
price for the first half of US$3.29/lb (2006: US$3.31/lb) of payable copper; the zinc cash production cost was
US$0.53/lb (2006: US$0.47/lb) against a realised zinc price of US$1.20/lb (2006: US$1.70/lb). This enabled
the Company to deliver a cash operating margin for copper – currently the principal contributor to its earnings
– of US$1.84/lb of payable copper and a cash operating margin for zinc of US$0.68/lb of payable zinc.
“Although we saw a 30% reduction in the realised zinc price during the half, the continued diversification of
our production – with copper currently the main driver of our earnings growth – provided a solid buffer
against adverse commodity price movements,” commented Kagara’s Executive Chairman, Kim Robinson.
“We are very pleased overall with the result, which really highlights the robust nature of our operations and
their ability to generate strong cash flow and profits at all phases of the commodity cycle,” he added. “The
operational improvements we implemented last year, including the change to owner-operator mining and
increased operational flexibility arising from the re-commencement of mining at Mt Garnet, has also given us
greater capacity to withstand seasonal rainfall events and other operational challenges.”
Mr Robinson said Kagara’s strongly growing production profile was set to continue, with production of
copper and zinc respectively on target to exceed levels of 30,000 tonnes and 40,000 tonnes of copper metal
and zinc metal for the 2007/08 financial year.
“We are also continuing to deliver on our growth strategy, with construction of the new $80 million Mungana
base metal production centre on track to commence in April,” Mr Robinson. “This project, which is being
developed as an underground operation, will drive our production and earnings growth through the rest of the
decade, enabling us to double our zinc production to 100,000 tonnes of metal by 2010.”
Mr Robinson said other recent highlights included the high-grade base metal discoveries at Waterloo, near the
Thalanga copper plant, and Victoria, in the Chillagoe region, as well as the highly successful $20 million
drilling program at the Admiral Bay Zinc Project in Western Australia. “The completion of this program and
an initial resource scheduled for the second quarter, combined with ongoing exploration programs at Red
Dome in Queensland and Lounge Lizard in Western Australia will continue to expand our pipeline of exciting
development prjects for the future,” he said.