2000 Annual General Meeting - Chairman`s Address
Mark R Rayner
The past year has been one of the most eventful in the history of Pasminco. It saw the culmination of projects that have taken a number of years to bring to completion and set Pasminco on a clear path to the future.
You will be aware from our annual reports and announcements that during recent years, Pasminco has been on a course of rebuilding and reorganisation. Acquiring new assets such as Savage Resources, developing new operations like Century, upgrading existing operations and reorganising the way our business is structured and managed.
This activity has been aimed at building a platform for the next decade of the company’s development.
I should emphasise that through all of this change and development, the long term strategy of the company has not changed. Pasminco remains focused on the production of zinc and lead. The company aims to be profitable at all points in the metal price cycle and aims to achieve an average 15 percent return on shareholders’ funds through the cycle.
While it is pleasing to report a modest return to profitability, the Board cannot be satisfied with the level of return on shareholders funds. Shareholders will also be aware that even with this return to profitability, the Board has decided not to declare a dividend for this year. Rather, we have taken the view that this year profits are best directed to reducing debt levels and pursuing improved profitability to underpin a recovery in the share price. In this respect, it is relevant that it is not possible currently to frank any dividend that might be declared.
With this period of reconstruction now behind the company, the Board is confident that the current year will result in significantly improved financial performance, deliver stronger returns on funds invested, and see accelerating progress on reducing debt levels.
Today, I want to reflect on some of Pasminco’s key achievements during the year, review external factors that play a large role in determining the profit result and look to the current year and beyond.
First and foremost, as a large employer across Australia and with operations in the Netherlands and the United States, safety remains our top priority.
During the year, company-wide safety management standards and beliefs and a self-evaluation and safety audit process were introduced. The aim of this work is to raise the awareness of safety issues across the Group and identify those areas that require attention. We will continue this work relentlessly during the current year.
Operationally, it was a positive year with record production being achieved across the Group. This is a clear demonstration that the work conducted during the past few years to upgrade and improve processes and operations is showing results.
The highlight of the year of course was the commissioning and official opening of Pasminco Century mine. It officially became an operational mine on 1 March and the Queensland Premier The Hon Peter Beattie formally opened the mine on 4 April. I am pleased to say the production ramp up and fine-tuning of the facility is progressing well.
Most pleasing for me on the day of the opening was the spirit and involvement of the people from the local communities and the pride of Pasminco employees at the result of a job well done.
This project represents the largest resources investment in Queensland for at least the past decade and it is certainly one of the larger mine developments in the world in recent years. It doubles Pasminco’s production capacity and places the company in the position of being the largest producer of zinc in the world.
This is significant as we work to increase our market share throughout the west pacific region and North America.
Century is of fundamental importance to Pasminco for two reasons. First, it gives the Group a resource base to underpin its smelter operations for the next twenty years and beyond, eliminating what was previously a real strategic vulnerability.
Second, it has assured the long term operational viability of the Budel smelter in the Netherlands which was under environmental threat. This plant has been redesigned to process the high quality Century zinc concentrate exclusively. Not only is this efficient from our own operational point of view, but it ensures that Budel meets the rigorous environmental standards developed in consultation with the Dutch government. It has allowed the plant to cease the production of jarosite residue - an outcome that was essential for its continued long-term operation. This now means that with the introduction of the co-treatment process at Hobart in 1997, Pasminco has completely eliminated jarosite from the production process.
The interdependency of Budel and Century also introduces a once-off impact on financial performance.
Let me explain how this occurs.
As Century concentrates are largely being consumed in our own smelter in Budel, the profit from the sale of these concentrates is not realised until the finished metal is shipped from Budel. Moreover, there is a significant amount of Century concentrate in the delivery system between the mine and the smelter. The financial benefit of Century on the Group’s result will therefore only become evident in our results in the second half of this financial year.
Important progress was also made at other sites to improve performance. Efficiency programs and improved planning processes led to improved results at the smelters and mines and the focus on improved environmental performance continued. Again, I am pleased to report that the foundations are in place for further performance milestones during the current year.
The management structure of the Group changed during the year to allow it to derive full benefit from last year’s business systems changes, sap software implementation and the move towards sharing of corporate support services across the Group. The company is now structured along divisional lines, which is leading to improved operational and cost performance.
Overall, the Group focus on costs is continuing and is delivering benefits. In addition to the structural and shared services initiatives, life of mine studies are being conducted to identify ways of optimising mining methods resulting in improved efficiencies and reduced costs. Production stability programs at the smelters are designed to have similar results.
Exploration activities continued primarily in districts surrounding our existing mines. In Peru, results to date are quite encouraging on areas acquired as part of the savage takeover.
I also should mention briefly our position with the Ernest Henry copper/gold mine in Queensland. Shareholders will be aware that Pasminco secured a 49% share in the mine when it acquired Savage Resources in 1999. The zinc assets such as the US mining and smelting operations have been successfully integrated into Pasminco and other non-core assets have been sold.
Our intention to sell the share in Ernest Henry remains, since it does not match our strategy of being a focused zinc/lead producer. However, we will only sell at a price which represents fair value for shareholders. As we work through this process, I am pleased to report that Ernest Henry is making a positive contribution to Pasminco results.
Exploration, concentrate and metal production are just the beginning of the process for Pasminco.
As an integrated producer of zinc and lead, the market outlook remains critical for us. Demand in Europe and Asia remains encouraging while in Australia it has been increasing slightly. Continuing growth in the United States saw demand remain positive although we continue to monitor the us economy closely. The most significant change in the area of concentrate marketing has been the introduction of Century concentrate onto the world market.
This will be an ongoing challenge throughout the coming year as Century moves to full production.
During the year, Pasminco continued to engage with the communities in the vicinity of its operations.
A strategic approach for working with indigenous communities was launched. It expands on the goals of our existing indigenous people policy and provides a framework for further action. A clear example of our commitment in this area has been the progress achieved to date at Century as part of the Gulf Communities Agreement. This agreement has Pasminco working in partnership with local aboriginal communities and the Queensland government to develop long term, mutually beneficial relationships.
So far, five local businesses have been established, $14 million has been paid in wages to the local workforce, more than 100 locals are currently employed on site and work is continuing in relation to ongoing management of pastoral leases and environmental issues.
Relationships of this kind are not only effective in the short term. They can provide opportunities for long-term regional development.
Work is continuing at Broken Hill in preparation for the expected mine closure in 2006. Shareholders will be well aware of the magnificent history of Broken Hill and its lasting contribution to the nation. In addition to maximising mine output during the coming years, we recognise that we must remain actively engaged with the Broken Hill community, State and Federal government to ensure a smooth transition.
The second annual Pasminco environment report has been published recently and copies are available here today.
Shareholders are aware of the litigation currently underway relating to the smelters at Cockle Creek and Port Pirie. The matter will commence in the Victorian Supreme Court on 2 November.
I must emphasise that Pasminco takes responsibility for activities at its operational sites and is aware that in order to continue operations, it must meet or exceed community expectations and government regulations in respect of environmental performance. A significant level of continuing effort and investment is maintained at each of our sites to ensure operations meet very rigorous guidelines and we remain committed to that path. It is important to recognise also that the company is continually addressing issues relating to historical contamination of sites resulting from activities and processes that occurred many years before Pasminco existed.
The company has an obligation to defend itself in this action which it believes is not soundly based. It remains committed to the view that a class action is not the appropriate way to address individual matters. Individuals who have any concern about Pasminco operations are encouraged to contact the company directly.
I have already written to shareholders several times in relation to this matter and we will continue to ensure that information on its progress is available.
As always, Pasminco performance is impacted significantly by external factors. The price of metals was variable during the past year and that trend has continued into the current year with zinc prices declining during recent weeks.
We remain cautious in respect of the direction of metal prices, in light of revised global economic forecasts and indications that the United States economy is entering a period of some slowing.
We are similarly cautious on the likely trend of exchange rates and their impact on sales revenue and financing issues.
Unfortunately, the Pasminco share price remains depressed. This is in line with other Australian companies in the resources sector.
This is an issue which gravely concerns the Board. In our view, the market is sending a clear message to Pasminco that a steady stream of earnings during the years ahead and the rapid reduction of our debt levels will be the best measures of performance and will greatly assist in restoring confidence in the share price.
The onus is clearly on Pasminco to perform and to perform consistently over an extended period.
The Board is confident that the steps taken during the past several years to improve operational performance at major sites, bring the Century mine into operation and reduce costs in every area of the Group’s activities place the business in a sound condition with a more certain and confident outlook.
Since last year’s AGM there have been a number of changes to our senior management team. Ron Berenholtz, previously our EGM HR, and John Winckel, previously EGM Australian Smelting have both moved on to new roles outside the company. The executive team has also been strengthened through the appointments of Stephen O’Donnell and Matt Pollard - who I introduced to you earlier.
I would now like to ask David Stewart to review operations for the year.
MRR resumes seat. David Stewart to lectern.
[Detailed presentation by David Stewart]
David Stewart resumes seat. MRR to lectern.
Thank you David.
Before moving on to the business of today’s meeting, I want to comment on performance during the first quarter of the current financial year.
In general terms, Pasminco is starting the year positively, which is a continuation of overall performance at the end of the previous financial year. Ore and metal production are both up on the previous quarter, essentially reflecting the ongoing ramp up of Century.
Production results across the smelters have been very encouraging. Cockle Creek is performing well and Hobart is once again demonstrating that effective planning and management can result in consistently good performance.
Port Pirie production was down slightly as a result of a scheduled maintenance shutdown, which included the installation of a new blast furnace hood that will contribute to improved environmental performance. Budel also was down slightly as it adjusted to working with 100 percent Century concentrate but the outlook is positive.
Century was on line for its second consecutive quarter and is making a significant difference already to our overall production figures. Otherwise, performance across the mines was generally positive.
We have started the current financial year the way we finished the last. Strong production, Century ramp up continuing and further benefits being delivered through improved business processes. This will be a year of hard work and commitment from everyone in Pasminco and over the full 2000/2001 financial year, we look forward to delivering a strong result to shareholders.
25October 2000
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