Zinifex's Bad News Is Good News

Sydney, Dec 12, 2006 (ABN Newswire) - Bad news is good news in thecontrarian world of commodities at the moment.

Take Zinifex, the country's leading zinc miner and a major player on the world market. It's already facing lower zinc and lead production from its huge Century mine in Queensland because of an accelerated overburden stripping campaign that will improve mining conditions in future years and could extend the life of the mine.

It earned just over a billion dollars last financial year and earnings look like being substantially higher this financial year because of higher prices, driven by strong demand and falling stocks of metal.

The work at Century is in fact contributing to the tightening stock position worldwide and the higher prices.

So with that in mind it's easy to see how investors greeted the news yesterday from ZFX that more production problems at Century would take around $30 million worth of production out of its schedule and not be recovered.

Zinifex said the loss would be around 8,300 tonnes of metal in concentrate which will have an impact on the world market.

So it's no wonder ZFX shares went for a big run as a result, recovering the $17 a share level and closing around $17.38, up more almost 70c on the day. The stock is headed back towards the $18.74 all time high set last week after the metal price hit a new high.

The news was announced just after trading started on the ASX yesterday but not before ZFX shares eased to a low of $16.51 on the fall late last week in London. That was quickly forgotten in the expectation that the news from Century would cause world metal prices to rally tonight, especially on the LME.

Zinc prices fell 1.2 per cent to $US 4,345 a tonne in London on Friday after hitting a new record of of $US 4,600. That was after a report put LME stocks at 87,700 tonnes, less than three-days of global consumption.

The company said in yesterday's statement that a mechanical failure of the concentrate thickener at Century's Lawn Hill facility on December 9 had resulted in an estimated seven-day shutdown of concentrator and pumping operations at the Lawn Hill mine.

"While the impact on customers is expected to be modest due to quantities of zinc concentrate already stored at the Karumba port, the production lost due to this interruption to operations will not be recovered," Zinifex said in a statement.

"We therefore estimate that sales this financial year will be reduced by approximately 8,300 tonnes of zinc and 700 tonnes of lead in concentrate."

The company said mining activities at Century were continuing unaffected.

"Repairs to the thickener have commenced and production is expected to resume on or before 17 December 2006," it said.

The irony is that loss of $30 million could actually be well covered by any price increase the shortfall causes and it will add to the strong belief in the market that Zinifex is heading for another record result, well above 2006's $1.1billion.

Back in August when the record 2006 results were released, the company said world prices in July were "more than 50 per cent higher than a year ago".

At the AGM on November 27 shareholders were told that world prices from July to the end of October had been "160 per cent higher than a year earlier".

They are still at those levels. Expectations of the record result come despite an expected 10 per cent plus rise in costs because of the extra work at Century and higher exploration and development work.

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