Two mining companies do well while others plumb the depths

Friday 9th February 2001

By Peter V O'Brien

Anyone holding shares in mining companies other than Fletcher Challenge and Gold & Resource Development over the past year had a tough time.

Those who brought Fletcher Energy and/or Gold & Resource last February and are still shareholders enjoyed good capital appreciation, albeit on paper, if they were still holding last week.

End-quarter prices for mining and mineral exploration stocks are in the table.

In this context "end-quarter" means each of the three-monthly periods when The National Business Review examines the sector. There is a delay of about a month before all quarterly reports are filed with the Stock Exchange, so the general information, as opposed to the table of share price movements, relates to the quarter ended December 31.

Fletcher Energy is to be sold to a combination of Shell and US company Apache after the Commerce Commission approved a revised offer for the FCL division, having earlier declined a revised offer for the FCL division, having earlier declined an initial proposal.

Fletcher Energy's share price weakened after the Commerce Commission made its first decision but climbed back to $9 at the end of last week, compared with a 2000/01 high of $10.01.

Last week's price was 111.2% higher than that ruling a year ago. Fletcher Energy's quarterly report concentrated, as it had to, on production and exploration for the three months ended December and said nothing about the proposed sale.

To that extent the report was academic but all production was up and there was an increase in reserves in exploratory oil and gas fields.

The company's overall production, expressed in million barrels of oil equivalent (mmboe) gained 5% over the corresponding of the previous year, reaching 12.317mmboe.

Goldminer Gold & Resources Development and Otter Gold Mines had notable contrasts in performance during the quarter, in terms of both share price movements and production statistics. The table shows Gold & Resource's share price appreciated steadily over the past year, although still below the levels reached when the company was Macraes.

Otter went the other way, losing 58.1% of the share's market value in the past 18 months, after adjusting for a 2:5 rights issue.

The companies' quarterly production and exploration reports disclosed patterns that probably accounted for the different share price experiences.

Gold & Resource's report included information on the company's financial year, because December 31 was both the end of the quarter and the corporate year. The company said gross revenue increased 107% to $A150 million. Earnings before interest and tax debit were up 44% to $A26.8 million, the return on equity was 29% (a relatively high figure), gold sales moved 39% to 173,247oz and cash costs fell 15% to $A289 an ounce.

Gold & Resource's previous quarterly report noted the state of the New Zealand dollar and said if the then exchange rate continued to December the net profit forecast of $A25 million would not be met.

The report did not give net profit for the year - that will come latter - but the company said there was a $A6.2 million charge arising from the "adverse impact of the New Zealand dollar devaluating during the year."

The group had an unaudited debit of $A33 million if the impact of the currency translation was eliminated.

Gold & Resource said the translation loss was a non-cash item relating to the company's long-term US dollar loan, repayable in March, 2004.

The company would continue its policy of not hedging debt, saying it was "providing equal upside to an improving New Zealand dollar."

Otter Gold Mines had lower production at its Tamani mine (Northern Territory) and at the Coromandel's Martha Mine (a 32.94% interest).

The downturn at Tamani resulted from a planned mill shutdown for maintenance, the early onset of the wet season and "geotechnical instability" in two of the mine's open pits.

Martha's reduction was said to be in line with a predicted decline in head grade ore "associated with the Martha vein merging into the wall of the present interim pit and mining of lower grade ore from the extended pit cutback areas."

Otter had a higher cost of production compared with the previous quarter.

The company has a hedge programme for future delivery of gold. Its closeout value, based on the December 31 spot gold price, was a negative $NZ13.4 million.

Other mining companies were in a dull mode during the quarter. Summit Resources moved to base metal activities after a setback to its uranium mining project in Queensland. The company noted the impending election for the Queensland state government on February 17 and considered the uranium mining policy could change if the incumbent Labor government was defeated.

Mining stocks' share prices (c)
Company	4.2.00	28.4.00	28.7.00	29.10.00	2.2.01
Cue	12.4	8.5	6.9	4.6	5
Fletcher Energy	426	475	715	849	900
Heritage	18	8	8.1	6.1	4.5
Gold & Resource	92	90	96	111	150
NZ Oil & Gas	63	25	28	28	30
Otter (adjusted for 2:5 issue)	74	61	59	40	36
Summit	13.3	11	9.5	7	10
London gold
($US/oz)	293.65	275.05	279.85	265.45	266.70
2000/01 high: US313.00; low $US 262.90

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