External Factors
At US$994/tonne, the average realised zinc price in 1999 decreased 17%, compared with US$1,192 in 1998. The realised lead price was also lower in 1999, averaging US$518 compared with US$562 in 1998.

The average realised AUD/USD exchange rate for 1999 was 62.4 cents compared with 70.0 cents in 1998. The Group`s natural revenue hedge, which allows the Group to match movements in its US dollar debt against future revenue, did not impact significantly on the realised AUD/USD exchange rate in 1999.

The Australian dollar/Dutch guilder exchange rate averaged 1.24 guilders compared with 1.38 guilders in 1998. As approximately 15% of the Group`s cost base is in Dutch guilders, a stronger guilder has an unfavourable impact on the Group`s results.

The lower zinc and lead prices reduced earnings by and weaker Australian dollar contributed $26 million and $94 million respectively to earnings. The lower lead price and stronger Dutch guilder reduced earnings by $40 million and $2 million respectively.

The lower zinc and lead prices combined reduced earnings by $170 million. The weaker Australian dollar contributed $115 million, while the stronger Dutch gilder reduced earnings by $14 million.

Operating Performance
Output of zinc and lead from the Group’s mines and smelters was 11% higher than the previous year.

Higher production and sales volumes increased earnings by $59 million, but this was offset in part by higher costs of $42 million.

The impact of weaker metal market conditions in some parts of Asia flowed through to lower premiums, but this was offset to some extent by stronger market conditions in Europe. Lower metal premiums overall reduced earnings by $6 million in 1999, but the Group`s global market spread ensured production remain fully sold.

The Group`s key measure of competitiveness, its break-even zinc price, increased by 2%, from US$998/tonne in 1998 to US$1,020/tonne in 1998/99. However, excluding the impact of the abnormal gain in 1998, the break-even was reduced by US$41/tonne.

Cash Flow
The Group generated cash from operations of $440 million in 1999.

From this, capital expenditure of $821 million was funded. Major projects included Budel`s conversion to Century concentrates ($74 million), and installation of new business systems ($24 million). Capital expenditure on the Century project was $500 million.

Working capital levels at year end were $4 million higher than the previous year.

An unfranked dividend of 4 cents per share was paid in November 1998, the dividend payment totalling $45 million. Net financing costs in 1999 were $35 million, $21 million higher than 1998 due to higher debt levels during the year.

The acquisition cost of Savage Resources Limited net of cash acquired was $406 million.

Currency Options
A currency option program was recommenced in 1998 to protect the Group`s US dollar revenue stream against adverse movements in the AUD/USD dollar exchange rate. When the exchange weakened significantly in the latter part of 1997, and in periods of weakness since then, call options were purchased and put options were sold simultaneously. This is referred to as a cap and floor option strategy.

As at 30 June 1999, cap and floor options to the value of US$940 million were in place over the period July 1999 to December 2002. The average strike price of the cap is US65 cents and the average strike price of the floor is US58 cents. The effect of this strategy is to protect US$940 million of revenue against a rise in the Australian/US dollar exchange rate above US65 cents while forgoing the benefit of a fall in the exchange rate below US58 cents.

Full details of this position are contained in Note 26 to the accounts on page 49 of the 1999 Annual Report.

Financing Activities
The Group undertook a number of financing initiatives during the year to support the significant investment in Century and the acquisition of Savage Resources Limited. Sources of finance were accessed to best match the nature of the investment and likely revenue stream. Debt levels during the year were impacted by these investments, the benefits of which will be seen during the 2000 and beyond.

The major financing activity during the year was the arrangement of a $475m bridging finance for the acquisition of Savage Resources Limited. Additional finance of US$70m was raised to repay existing financiers to the Ernest Henry project.

A five year forward silver sale was arranged during the year, raising A$307m. Pasminco is required to deliver approximately 60% of the Port Pirie Smelter`s silver production over the next five years in satisfaction of the forward sale obligation.

Financing for ancillary activities in connection with the Century project (including the mine fleet and accommodation village) were finalised during the year. Sale and lease back arrangements for the Century mine`s pipeline, port and transfer vessel have now been completed.

Bilateral facilities of A$100m were established and facilities to the value of US$25m
and A$45m were renegotiated during the year.

The CreditWatch placed on the Group`s rating following the announcement of the Savage Resources Limited takeover in October 1998 was removed and the Group`s BBB- rating reaffirmed in April 1999.

At year end the Group had committed facilities of A$1,654 million of which A$377 million was undrawn. Net debt drawn at 30 June 1999 was A$1,256.3m and the Group`s net debt to debt plus equity ratio was to 46.2%.

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