KZL - Kagara Limited

[oldblue]

Re: KZL - Kagara Zinc

Any thoughts about KZL at the moment ? Being butchered on the market and currently at 40c. But it is still producing copper and zinc at a reasonable profit and theoretically yielding 30% ! On all its statements this company should be worth far more and recover strongly. Have I missed something?

I doubt that you've missed anything.
KZL is just another unloved metals stock. The market sees the price of zinc, copper etc continuing to fall and no reason to buy.

 

[jonnycage]

Re: KZL - Kagara Zinc

im with ya, again its just shear fear taking complete control.

im still holding stock, just turning off the share price at this stage (along
with the others ... lol)


i guess all we can do is hurry up and await some kind of recovery ? not
a guarantee lol

 

[doogie_goes_off]

Re: KZL - Kagara Zinc

It has been a reasonable recovery in recent days. Althought the nickel price is dead, it's amazing grades and the high grade 261000 tonnes at Lounge Lizard that still attracts me to this one. I wonder whether they can make a profit at these Pb/Zn prices? I wish I had thought 36c is too cheap a little harder. Anyway one to watch if the market recovers next year.

 

[GREENS]

Re: KZL - Kagara Zinc

DGO, I think if Lounge Lizard is to go ahead in the current environment (near term), they are going to have to strike some sought of a deal with Western Areas NL to use their decline. Also if you look at current and forecasted nickel cash costs at Flying Fox (US$2-$US2.50/lb), you would have to think LL would be very similar which makes the high grade ore still quite attractive to mine at just over $US4/lb. That is still an operating cash margin of around 37.5-50%.

The initial high grade resource initially announced in July stood at 263,000t @ 6.4% Ni (16,832t of contained nickel) with drill results from the upper T4 extension area excluded. Since this initial resource more high grade intersection have been returned in the both the T5 and T4 area extensions. These include:

•LFPD18W2W1W1 – 140.27m @ 1.5% Ni = 17.24m @ 1.4%, 9.03m @7.8%, 13m @ 3.1% & 101m @ 0.75%.
•LFPD18W2W1 – 76.6m @ 3.3% Ni = 27m @ 6.1%, 7.56m @ 8.1%, 2.3m @ 6.9% & 39.74m @ 0.23%.
•LFPD18W3W3W1 – 62.00m @ 3.2% Ni = 10.00m @ 7.5%, 12.3m @ 5.2%, 4.48m @ 9.2% & 35.22m @ 0.52%


In terms of the companies copper and zinc operations, all operations are generating positive cash flows. In a recent announcement they said cash costs for the coming and hopefully prevailing quarters would be <$US1.30/lb of payable copper and <$US0.40/lb of payable zinc. But I would suspect with exploration drilling only continuing at LL that most free cash flow would be going towards paying down the companies’ debt which falls due in 2 instalments throughout 2009 with the larger facility due in Oct.

 

[aussiger]

Re: KZL - Kagara Zinc

I think this company is a good investment for the not the far future, because when economy arise again, the prices for metals will be pushed back into the old highs. The demand for zinc & copper will increase rapidly and then this company will earn much money again.

If you take a look at this chart, you can see that before the big financial crisis appears in the news (crisis still began in 2007), KZL was a long time over $4

It is very possible that KZL reaches this old values again.

 

[oldblue]

Re: KZL - Kagara Zinc

I think this company is a good investment for the not the far future, because when economy arise again, the prices for metals will be pushed back into the old highs. The demand for zinc & copper will increase rapidly and then this company will earn much money again.

If you take a look at this chart, you can see that before the big financial crisis appears in the news (crisis still began in 2007), KZL was a long time over $4

It is very possible that KZL reaches this old values again.

You may well be right but the recent big drop in KZL's SP correlates more to the price of zinc than to how the "financial crisis" has panned out, IMO.
The SP drop from around $3 to 50c has occurred over the period from early Sept during which the PoZ has dropped from around 80cUS per lb to 50c.

 

[doogie_goes_off]

Re: KZL - Kagara Zinc

I got out of this one after jumping in at 36c, I got spooked that commodity prices were not going to recover and wish I had hung on now (oh hindsight is a wonderful thing!)

 

[dmagnus]

Re: KZL - Kagara Zinc

I got out of this one after jumping in at 36c, I got spooked that commodity prices were not going to recover and wish I had hung on now (oh hindsight is a wonderful thing!)

well I see operational cashflow and current cash as not sufficient to pay back debts which are due at end of march... could be bad news for these guys...

 

[trillionaire#1]

Re: KZL - Kagara Zinc

www.bloomberg.com :Kagara ltd has agreed to sell as much as 10 percent
stake in the company to a customer to bolster its balance sheet.
------------------------------------------------------------
when Kagara went into a trading halt this morning i was assuming a large
capital raising from existing share holders, diluting my and other shareholders
piece of the Kagara Zinc pie.

im hoping this could be somewhat helpfull to the SP.
what do others think?

 

[UMike]

Re: KZL - Kagara Zinc

www.bloomberg.com :Kagara ltd has agreed to sell as much as 10 percent
stake in the company to a customer to bolster its balance sheet.
------------------------------------------------------------
when Kagara went into a trading halt this morning i was assuming a large
capital raising from existing share holders, diluting my and other shareholders
piece of the Kagara Zinc pie.

im hoping this could be somewhat helpfull to the SP.
what do others think?

I hoping so also.

I thought they were going to sell an asset (Admiral Bay)

Any lowering of debt for this cash flow posistive company can only be good news.

 

[CarbonSteel]

Re: KZL - Kagara Zinc


As I write, they are trading at $0.39. Who do I call to thank for diluting and devaluing our shares, not to mention the offer of the privilege to buy more at a premium (as opposed to discount!) of 2.5%!

 

[jet328]

Re: KZL - Kagara Zinc

As I write, they are trading at $0.39. Who do I call to thank for diluting and devaluing our shares

Are you serious? I'm amazed that they raised $10m at such a small discount, most capital raisings have been absolutely brutal for smaller companies, look at much larger IPL & Transfield

The problem is they really need the cash. Hopefully both loans can be rolled over later in the year

 

[CarbonSteel]

Re: KZL - Kagara Zinc

Are you serious? I'm amazed that they raised $10m at such a small discount

Yes, I am serious.
The trading halt was implemented when the SP was $0.42.
The sale of 25M shares to Transamine diluted the value to approx. $0.376 immediately. (216M x $0.42 / 241M = $0.376).
Then, as a SH, I am graciously offered shares at $0.40 and I'm supposed to feel happy about it? Should not the SH's have an advantage over non-SH's? To add insult to injury, the price fell to $0.38, leaving SH's to pay a premium of 5% c/f the companys' offer! It was obvious to me watching trading, that SH's caused a bottleneck as they ran for the door.

 

[oldblue]

Re: KZL - Kagara Zinc

It's a sad fact of life that companies need to offer a sweetener to the instos if they need to raise a big chunk of new capital, especially in today's conditions and particularly if they are second tier miners.
There's plenty of companies around at present that will have difficulty raising the necessary, at any price!

 

[CarbonSteel]

Re: KZL - Kagara Zinc

Maybe times are difficult for 2nd tier miners, but that did not stop Panaust from having a very successful (oversubscribed in 2 days) SPP. Was it possible that Kagara could have presented their placement in similar (and way smarter) fashion? Anyhow, now we lucky SH's are looking at a 17.6% premium if we buy from the company instead of the market. Anyone sent their cheque off yet?

 

[CarbonSteel]

Re: KZL - Kagara Zinc

It's a sad fact of life that companies need to offer a sweetener to the instos if they need to raise a big chunk of new capital, especially in today's conditions and particularly if they are second tier miners.
There's plenty of companies around at present that will have difficulty raising the necessary, at any price!

Market commentators over the last 2 - 3 days..." retail shareholders are not being treated fairly. They (the long term loyal company supporters) get nothing but diluted while the ""instos"" get the good deal".

If you set yourself up to get a reaction from an angry investor, don't act surprised when it happens.

 

[UMike]

Re: KZL - Kagara Zinc

Market commentators over the last 2 - 3 days..." retail shareholders are not being treated fairly. They (the long term loyal company supporters) get nothing but diluted while the ""instos"" get the good deal".

If you set yourself up to get a reaction from an angry investor, don't act surprised when it happens.

While I agree that us small time investors are getting the raw end of the stick for those of us that missed out on getting more at below the 40c mark may well be participating in the Share purchase Application after all.

 

[CarbonSteel]

Re: KZL - Kagara Zinc

While I agree that us small time investors are getting the raw end of the stick for those of us that missed out on getting more at below the 40c mark may well be participating in the Share purchase Application after all.

Lets explore an example. Lets imagine that SP is $0.50. OK, so we have 241M @ $0.50 = $120.5M. Now lets say that they issue an extra 30% capital (as they correctly point out - they are allowed to). Now there are 321M shares. So the dilution to share value is thus...$120.5M/321M = $0.375. So, I guess my question is this. Would you rather buy shares from the company at $0.40 or possibly on market (after the placement is completed) at $0.375?

The above is an example only. It is not an attempt to ascertain a target price. Do your own research. Reach your own conclusions. No responsibilty taken for anyone acting on the above figures.

 

[Aargh!]

Re: KZL - Kagara Zinc

I have obtained the following from Newjo's posting on HC....


Huntley's Recommendation: Kagara Ltd

Recommendation: Reduce

The Mt Garnet plant in Qld sources ore from a number of small, high grade deposits to produce zinc, copper, lead, silver and gold. Thalanga’s late 2006 start-up makes copper the dominant metal. The Mungana base metals mill at Chillagoe, similar to Mt Garnet, was postponed in 2008. It was to start April 2009. Red Dome and Mungana may support a combined low grade gold/copper development. KZL’s Lounge Lizard is a promising exploration project adjoining Western Areas’ (WSA) Flying Fox nickel mine in WA. Admiral Bay is a large but low grade and deep zinc, lead, silver deposit with significant option value. Speculative and only for those seeking upside from exploration and development with a tolerance for mining and commodity price risk. KZL has no moat with cash costs near the industry average for zinc but in the highest quartile for copper.

Event
06-Feb-2009

Much has changed in the past five months. When we reported on the FY08 result in August copper was US$3.44/lb and zinc US$0.81/lb. KZL’s margins were healthy. Copper is now US$1.45/lb and zinc US$0.49/lb. The balance sheet has weakened substantially. Spending was relatively heavy in 2008 with capital directed to the mothballed Mungana Basemetals plant and exploration – both now pared back to a minimum. As at June 30, 2008, cash was $15.8m and debt $100.0m – receivables and payables broadly balanced. Cash at end December 2008 was $31.7m but debt was approaching $200m. Payables have blown out to exceed receivables by more than $70m. Provisional pricing payments of $34.5m received from smelters in 1Q09 are to be repaid in 3Q09 due to the steep fall in the copper price.

Business Impact: We have slashed our valuation to $0.54 a share in response to the worsening financial position, dilution from the placement and severely reduced near term earnings. We cut $150m from Admiral Bay, Lounge Lizard and the Mungana/Red Dome gold copper – all projects now valued at zero given the weak balance sheet and considerable development hurdles. The valuation assumes survival and no further discounted equity raisings. That’s appears a best case scenario now. Our forecast FY09 loss of $9.8m assumes $34.5m of provisional pricing losses, US$1.97/lb copper, US$0.59/lb zinc and an A$/US$ exchange rate of 0.70. Our modest $7.7m FY10 forecast assumes US$1.58/lb copper, US$0.55/lb zinc and an A$/US$ exchange rate of 0.64.

Forecast Impact: --
Recommendation Impact: With combined net debt and negative working capital of $250m, leverage in the face of weak operating cashflow is uncomfortably high. The company needs asset sales or improved commodity prices and survival is not necessarily assured. Despite trading at a discount to our valuation, risk dictates a downgrade in recommendation to Reduce.

Event Analysis
Much has changed in the past five months. When we reported on the FY08 result in August copper was US$3.44/lb and zinc US$0.81/lb. KZL’s margins were healthy. Copper is now US$1.45/lb and zinc US$0.49/lb. The fall in the copper price is the most worrying for KZL. Our forecast revenue over the next decade – based on Mt Garnet, Thalanga and Mungana Basemetals is split approximately 51% copper and 37% zinc with lead, silver and gold all minor contributors. Gold could represent a larger slice if a dedicated gold plant is built to service the Mungana deposit and Red Dome but would require additional capital. The zinc business has some competitive advantage. Cash costs of US$0.53/lb in calendar 2008 place KZL in the middle of the industry cost curve. At current prices, margins are slim but the business by itself would likely survive. By contrast, there is no real competitive advantage in copper. Cash costs of US$1.34/lb in calendar 2008 are deep inside the highest cost quartile. Copper investment was good as capital costs were low and quickly repaid. These mines will lose money sometimes though. Margins aren’t defencible and a debt laden balance sheet can be deadly. The balance sheet has weakened substantially. Spending was relatively heavy in 2008 with capital directed to the mothballed Mungana Basemetals plant and exploration – both now pared back to a minimum. As at June 30, 2008, cash was $15.8m and debt $100.0m – receivables and payables broadly balanced. Cash at end December 2008 was $31.7m but debt was approaching $200m. Payables have blown out to exceed receivables by more than $70m. Provisional pricing payments of $34.5m received from smelters in 1Q09 are to be repaid in 3Q09 due to the steep fall in the copper price. By end December 2008, the company had fully drawn down its $100m corporate facility with NAB as well as a $50m facility with Westpac established in the 2Q08.A further $22m of $25m is drawn under a guarantee facility and $20m of $40m under a leasing facility. The Westpac facility matures March 2009 – it was just short term to cover stocks built in advance of the wet season. The copper hedge book was closed out in January 2009. It was $25m out of the money at the end of December. To shore up its balance sheet, KZL raised $10m through the placement of 25m new 40c shares. Shareholders as at February 2 will be able to participate in a share purchase plan to buy either $2,000 or $5,000 of new 40c shares. The offer closes February 18 with a maximum of 64.9m shares to be issued for $26m. We’re not convinced the $10m placement will be sufficient capital to ease balance sheet pressures. Asset sales may be needed with Lounge Lizard and Admiral Bay the obvious options. KZL says it is progressing early stage expressions of interest in Admiral Bay but just what price these assets can fetch in this market is uncertain. We have had to slash our valuation to $0.54 a share in response to the worsening financial position, dilution from the placement and severely reduced near term earnings. We cut $150m from Admiral Bay, Lounge Lizard and the Mungana/Red Dome gold copper – all projects now valued at zero given the weak balance sheet position and considerable hurdles to development. Our forecast FY09 loss of $9.8m assumes $34.5m of provisional pricing losses, US$1.97/lb copper, US$0.59/lb zinc and an A$/US$ exchange rate of 0.70. Our modest $7.7m FY10 forecast assumes US$1.58/lb copper, US$0.55/lb zinc and an A$/US$ exchange rate of 0.64. With combined net debt and negative working capital of $250m, leverage in the face of weak operating cashflow is uncomfortably high. The company needs asset sales or improved commodity prices and survival is not necessarily assured. Despite trading at a discount to our valuation, risk dictates a downgrade in recommendation to Reduce.

NJ

 

[J.B.Nimble]

Re: KZL - Kagara Zinc

Just reading the Huntley's recommendation again and wonder if it might now be unduly pessimistic. A few days after that posting this opinion was expressed in the Australian

Feb 19
"Kagara Zinc (KZL) 39.5c

IN the grand mining tradition of hiving off fashionable commodity plays to unsuspecting investors, the copper and zinc miner hopes to parcel up its Queensland gold tenements and float them off as Mungana Goldmines.

Fair enough, too. There is zero interest in base metals but gold is attracting tentative interest given the record Australian dollar gold price.

According to Kagara, Mungana will consist of the Red Dome and Mungana porphyry deposits, containing an inferred resource of 1.6million ounces (plus copper and silver). Red Dome was mined profitably by Nuigini Mining between 1985 and 1996. Kagara argues that if Nuigini could turn a quid at the then going rate of $500 an ounce, the project should be a nice earner at the current $1500 an ounce.

We will see. In the meantime, Kagara's zinc and copper plants at Thalanga and Mt Garnet have been hit by flooding, but deliveries have not been "materially affected".

Kagara posted record December-quarter copper output at a margin of US68c a pound over cash costs, but zinc was extracted at a skinny buffer of US15c/lb.

While the operations are cashflow positive, provisional pricing adjustments plunged Kagara into the red. "No base metal miner in Australia is profitable at present and Kagara is no exception," it said.

Kagara is a hold. The company stands to unlock value from its gold assets but it really needs a sustained base metals recovery. "




I tend to agree. With out doubt it has been a difficult time for them and Q1 2009 may yet turn out to be the ugliest quarter, but with rising metals prices and Mungana Gold being prepped for sale the outlook is somewhat better.

Base metals prices are a clear enough story. December quarter was cash flow positive from operations with cash costs of 1.20 for copper and 0.41 for zinc. They should have moved a little lower as they have seen a full quarter with low exchange rate and low fuel costs. Meanwhile we have seen copper and zinc move above the December quarter average prices.

it will be interesting to see the progress on the costs as output increases. Copper is expected to increase from 26,000T to 35 to 40,000 T this year and zinc is due to increase from 40,000T to more than 100,000T by 2011.

The big hit they took in Q4 08 from provisional pricing adjustments should not be repeated - a much smaller impact if any in Q1 and may turn positive in Q2 if metals prices hold.

Debt is a problem that should be brought back in to line by a successful float of Mungana Gold. The sale is scheduled for June. They have announced resource upgrades and scoping study results in support of the sale. The scoping study numbers were a bit ambitious in terms of metals price assumptions but estimated production costs of A$300/oz should generate some decent interest.

KZL looks like it was being priced for failure but the corner may have been turned and if a survivor then there could some decent upside here.