Developments on track in a tough year

Pasminco recorded a profit after tax and abnormals of $63.3 million for the 1998 year, a decrease of $1.4 million from 1997. The result was assisted by an abnormal gain of $23.7 million relating to a reduction of the environmental provision at Budel Zink.

After considering Pasminco`s profit in 1998 and the outlook for the year ahead, the Directors have maintained a dividend payment for the year ended 30 June 1998 of 4 cents per share, on an expanded capital base. The dividend, which is unfranked, will be payable on 2 November 1998 with books closing at 10.00pm AEST on 21 October 1998.

Results were favourably influenced by a higher LME zinc price and weaker Australian dollar, offset by a lower lead price. Although sales volumes were maintained in Asia the economic situation in the region resulted in lower metal premiums. Operating performance was disappointing in the mining division.

"The past year was a tough one for us. The economic turmoil in Asia severely affected base metal prices in the second half although the weaker Australian dollar cushioned the impact of lower prices. Our operating performance was below potential but we are positioned to do better in the current year," said Managing Director and Chief Executive David Stewart.

"Considerable endeavour and achievement has seen co-treatment implemented at Hobart and Port Pirie followed by a major project to replace and expand the refinery at Port Pirie as well as a routine campaign shutdown at Cockle Creek. The refinery expansion underway at Port Pirie will deliver higher output and lower unit costs, re-affirming Port Pirie`s status as
the world`s pre-eminent lead producer."

Century Development

Significant progress was achieved at the Century project over the year. The pre strip commenced in May. As at end June, engineering was 75% complete and construction 30% complete. Capital expenditure to June 30 was $225 million, of which $141 million had been paid. Total capital committed to date is $720 million.

As a result of progress to date it is anticipated that the project will be completed ahead of time and under budget. The capital cost of the project is now expected to be less than $850 million. Ore is expected to be delivered to the mill during the 3rd quarter of 1999 and the first shipment of concentrates to be made in the 4th quarter.

External Factors

The average realised zinc price was 6% higher in 1998, at US$1,192/tonne, compared with US$1,124/tonne in 1997. The realised lead price was significantly lower in 1998, averaging US$562/tonne compared with US$724/tonne in 1997.

The average realised Australian US dollar exchange rate for the 1998 year was 70.0 cents, compared with 76.8 cents in 1997. The Dutch guilder was marginally stronger in 1998, with the Australian dollar / Dutchuilder exchange rate averaging 138.0 cents, compared with 140.3 cents in 1997.

The higher zinc price and weaker Australian dollar contributed $26 million and $68 million to earnings respectively. The lower lead price and stronger Dutch guilder reduced earnings by $40 million and $2 million respectively.

Operating Performance

The Group undertook a number of major capital improvement programs during the year. These included the refinery replacement and expansion project at Port Pirie, commissioning the co-treatment process at Hobart and Port Pirie and the four-week campaign maintenance shutdown at Cockle Creek. Each of these impacted production and costs over the course of the year. Budel`s production performance improved in 1998.

Mine production for the year was affected by lower ore grades at Broken Hill, a ground fall at Rosebery in January 1998 which restricted production until June, and the availability of only a single production stope at Elura for much of the year.

Lower production volumes and higher costs reduced earnings by $44 million and $32 million respectively in 1998.

With deteriorating metal market conditions in some parts of Asia toward the latter part of 1997 and into 1998, metal premiums in the region came under pressure. This was offset to some extent by stronger market conditions in Europe. Lower metal premiums overall reduced earnings by $16 million in 1998. However, the Group`s global market spread enabled sales volumes to be maintained.

The Group`s key measure of competitiveness, its break-even zinc price, increased from US$934/tonne in 1997 to US$998/tonne in 1998 due to the impact of lower volumes during the year and the impact of the lower lead price.

Outlook

Zinc and lead prices continue to be influenced by the investment markets` pessimistic outlook for global economic growth. This view is in stark contrast with the physical market, where LME stocks of zinc continue to decline. In line with the subdued outlook for commodity prices, the Australian dollar remains weak against the US dollar.

Pasminco has started the year with stronger operating performance and the full benefit of the weaker Australian dollar, and is trading profitably. The company continues to focus on the competitiveness of its operations and expects delivery of the Century project ahead of schedule and under budget.

For further information, please contact:
Trevor Shard +61 3 9288 9186 or
Rell Hannah +61 3 9288 0463


Click Here to download the Preliminary Final report (not equity accounted) for the financial year ended 30 June 1998 (MS Excel 5.0 format).

Return to Home