Dividends

Q. When do you intend to reinstate the payment of dividends?

Pasminco assesses the payment of dividend on an annual basis. The decision is based primarily on the profitability of the company, with the intention of paying out approximately 50% of annual after-tax profit as a dividend. Although there was a return to profit this year, the Board decided not to declare a dividend, taking the view that this year’s profits were best directed to reducing debt levels and pursuing improved profitability to underpin a recovery in the share price. This decision was reinforced by the fact that any dividend would have been unfranked. It is expected that profitability during the 2000/01 financial year will allow recommencement of dividends, however, the Board will consider this matter in light of the actual company performance and all other relevant factors.


Q. Will future dividends be fully franked?

The income tax loss position of the company will result in any dividends being unfranked for a number years into the future.


Q. Has the company considered the introduction of a dividend reinvestment scheme?

The Board considers the issue periodically but the company does not intend introducing such a scheme at this stage.


Performance


Q. How is Century performing and when can we expect to see financial benefit?

Century became operational on 1 March this year and to date has been performing well. The mill is currently operating at 80 percent of capacity and metal recoveries are in line with expectations. Operations at the mine will build gradually to achieve full production by the end of 2001.

Century zinc concentrates are being processed by customers around the world, including Pasminco’s Budel Zink plant which has been successfully converted to process Century concentrates exclusively.

The financial benefit of the Century investment will become more evident in the second half of the current financial year, as the finished metal from Budel is sold to customers.


Q. Are our ‘old’ mines under performing and should they be sold now Century is operating ?

All of our mines are profitable, and contribute to the Group’s cashflow. The older mines produce concentrates that are the preferred raw material for particular smelters, some owned by Pasminco and some owned by other companies. Importantly, the output from these mines can be sold readily on the world markets. However, the commissioning of Century and continued feasibility work at Dugald River are important steps in securing long term concentrate supply as the older sites such as Broken Hill approach the end of their viable life.


Financing

Q. Does the company regard debt reduction as a priority?

Pasminco’s debt has arisen predominantly as a result of activities aimed at securing the company’s long term future, in particular the development of Century and the acquisition of Savage Resources. Now that we are beginning to see the benefits of these investments, debt reduction is a top priority.


Q. Would it be better to leave revenue unhedged? Long term hedging seems too much of a gamble.

Pasminco has not sold its revenues forward. Pasminco borrows in US dollars, which is sometimes referred to as a ’natural hedge’. In addition, the company has put in place an option program designed to protect it against a strengthening Australian dollar. This protection was achieved by foregoing some of the benefit should the dollar weaken. The Board believes that the decision taken two years ago to put these options in place was prudent. Pasminco is benefiting from the current low exchange rate although the cost of the revenue protection has been to forgo a significant part of the benefit from the present unusual weakness in the AUD$.


Q. When will Pasminco’s return on net assets be greater than its cost of capital? In other words, when will we see better performance?

Strong production across the Group, the continuing ramp up of Century and business improvement processes allows us to be confident of a better result, year on year, as we continue through 2000-2001. However, the actual level of the return on assets is heavily influenced by external factors such as world metal prices and exchange rates that are beyond Pasminco’s control.


Q. Has the company sold forward a portion of its zinc production? If so, what percentage of its production has been sold forward and at what average price?

No. Pasminco has not sold forward any of its zinc metal production.


Q. What are the royalties paid on Century operations?

At Century royalty payments are only made to the Queensland Government. These totalled $4.5m for the year ended 30 June 2000. It is important to note that Century had been in operation since 1 March 2000 – only one quarter of the 1999-2000 financial year. There are also financial commitments under the Gulf Communities Agreement but these are not royalties on production.


Executive Remuneration


Q. Why should options be issued as a benefit to employees, when shareholders do not receive a dividend?

The decision to issue options is not linked to the paying of a dividend. Options are issued to provide a long-term incentive to employees. They are generally only exercisable after two years and to obtain any financial benefit, shareholder value must be improved providing benefit to all shareholders.

Q. Can you justify the allocation of options to Chief Executive and the other executives?

Options are offered to all permanent employees, including the Chief Executive. Details of the maximum permitted option allocation to the Chief Executive were set out in the Notice of Meeting distributed to shareholders. The options may be granted at the discretion of the directors to provide an incentive to improve shareholder value and align management with the objectives of all shareholders. Options granted will result in a financial benefit only when the share price has improved by more than 10% between the options being granted and the time they can be exercised at least two years later. The option plan is currently under review to ensure it is consistent with prevailing standards for such schemes.


Litigation

Q. When do we expect the Class Action to be resolved and what is the expected outcome?

It is not possible to predict when the class action will be resolved. The matter has moved to the Victorian Supreme Court where Pasminco asked for the matter to be dismissed. The hearing was completed on 8 November and the Court has reserved its decision. Even if this application is successful, the plaintiffs may recommence proceedings here or in another jurisdiction.


Q. On what grounds did Pasminco seek to have the action struck out in the Victorian Supreme Court?

In simple terms, there are three key reasons. First, is the question whether the Victorian Supreme Court has jurisdiction to make a ruling in a matter that impacts on residents in South Australia and New South Wales. Second, the company does not believe the applicant’s have satisfied the threshold conditions for establishing a class action. For example, each named plaintiff does not have a claim against each defendant. And third, the submission from the plaintiffs’ solicitors has been poorly constructed making it difficult to clearly determine the exact nature of the claims.


Q. If Pasminco has complied with its environmental licence conditions at Port Pirie and Cockle Creek, what basis is there for legal action?

Pasminco is committed to compliance with all its operating licence conditions. The class action is not based on claims that Pasminco has breached its licence conditions, it is based on allegations of negligence and nuisance – allegations Pasminco will deny.


Q. Is Pasminco pursuing options, such as mediation, for expediting resolution of the Class Action ?

We have always believed that a class action was an inappropriate way to deal with individual issues. Rather than pursuing a potentially lengthy and costly court proceeding, we are encouraging people to bring their concerns directly to us for resolution. So far we have received a very small number of inquiries but no claims requests. To date, the Board has had little alternative but to defend these proceedings.


Q. How much has the Class Action ‘cost’ Pasminco, and how much is it likely to cost?

While the matter is continuing, it is difficult to put an exact figure on total costs to defend these actions. However, at this stage it has cost Pasminco several hundreds of thousands of dollars defending the case in the Federal Court which was ultimately declared ‘doomed to fail’, and in the subsequent Victorian Supreme Court action. Pasminco is still waiting on a decision from the Federal Court in relation to the matter of costs from the class action proceeding that was dismissed in May. Shareholders will recall that costs were originally awarded in Pasminco’s favour against the applicants. However, the company asked the judge to set aside that decision to allow it to pursue the applicant’s solicitors for costs.


Q. What was known of the alleged emissions/pollution problems at Cockle Creek and Port Pirie at the time Pasminco acquired these assets and is there any opportunity to claim against previous owners?

The historical legacy of lead emissions was known at the time Pasminco acquired the operations in 1988 and it is something the company accepts today. Pasminco’s responsibility is to manage the issue to ensure it meets regulatory and community expectations. The current claim is not limited in time, which is one of the criticisms Pasminco makes of it. If and when the plaintiffs specify the period during which the emissions are said to have occurred, Pasminco can consider its options.

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