Mining and mineral companies lose shine in lacklustre quarter

Friday 11th May 2001

Mining and mineral exploration companies had another dull period in the past three months, with the exception of New Zealand Oil & Gas, which improved 20%, although from the low base of 30c on February 2.

Share prices for the sector over the past year are shown in the table.

Otter Gold Mines continued to slide since The National Business Review last reviewed the sector in February and the share price last week was only 1c above its two-year low.

The company had a 2:5 cash issue last year at 39c each, which was under subscribed. The underwriter, a subsidiary of Guinness Peat Group, increased its stake to 43% as a result.

Otter's latest quarterly report said four times the average annual rainfall caused the suspension of milling operations at the company's Tanami gold mine in Australia's Northern Territory from March 26 to April 25.

The rain was the main reason for Otter's equity average cash operating costs rising to $NZ699 an ounce of gold, compared with $NZ577 in the previous quarter.

Cash operating costs were $NZ537 in the three months ended September.

The rise in operating costs was also linked to lower gold production for the quarter when Otter's net equity production of 23,638oz was well below the previous quarter's 30,122oz.

Otter said its cash reserves were depleted during the quarter with negative cash flows from the Tanami and Martha (Coromandel) mines.

Suspension of milling activities at Tanami and continued milling of lower grade or until late June at the Martha mine would strain cash flows further in the June quarter.

Other references to the cash position said the compounding difficulties and delays at the company's mines had "stretched Otter's financial position" and the debt level required to weather the difficulties was "proving a significant burden," although Otter had "significant mining assets."

The company had developed a six-point strategy to improve its financial situation, including the sale of one or more of its mining interests for "fair value."

Production and cashflow from the mines in the next few months would be critical to Otter's ability to "negotiate and implement" the strategic steps.

Otter's problems were reflected in its sliding share price, which could be attractive for people willing to take a punt the difficulties will be overcome and profitability restored.

Australia-based miner Gold & Resource Developments, which operates the Macraes gold mine in Central Otago, was in better shape than Otter, with gold production of 42,487oz being ahead of the previous quarter's 40,592oz.

The average price received was $A545 and cash operating costs were $A267, leaving a gross cash operating margin of $A278. Corresponding figures for the previous quarter were respectively $A525, $A322 and $A203.

Gold & Resource Developments' share price was slightly higher last week than in February but it has risen 61% over the past year and given investors solid capital gains during that period.

The other producing "miner," New Zealand Oil and Gas, completed studies aimed at increasing total production from the Ngatoro oil field, in which it has a 35.43% interest, to two million barrels of oil over the life of the field.

The sale of Fletcher Energy during the quarter reduced the local mineral sector to six companies, three of which (Cue, Heritage and Summit Resources) have their main mining interests overseas. Heritage has also diversified into minority interests in technology-linked companies.

Summit Resources may be the best speculative bet of the three after announcing it was finalising negotiations on an alliance and funding agreement with Noranda Pacific Pty, a subsidiary of Canadian mining heavyweight Noranda Inc.

Funds will be used initially to drill-test Summit's Isa North base metal prospects in Queensland. After Noranda has funded $A6 million, that company will acquire 60% of any discovery.

Summit is still plugging away at seeking approval for uranium mining in Queensland, a matter the state's Labor government has opposed.

New Zealand investors interested in taking positions in operating miners have many more choices in the mining sector of the Australian Stock Exchange.

Those companies cover a wider range of mineral than is available in New Zealand and includes such international operators as BHP and Rio Tinto, both of which have production and exploration interests around the world, including this country.

Rio Tinto now owns all of Comalco, operator of the Bluff aluminum smelter, and BHP has the Glenbrook Steel Mill.

BHP is about to hold a shareholders' meeting to vote on a proposed merger with UK-based Billiton to form a "diversified global resources group" through a "dual-listed companies" structure, with primary listings in London and Australia, a secondary listing in Johannesburg and an American Depository Receipt listing in New York.

MINING STOCKS' SHARE PRICES (c)
Company	28.4.00	28.7.00	29.10.00	2.2.01	4.5.01

Cue	8.5	6.9	4.6	5	5
Heritage	8	8.1	6.1	4.5	4.9
Gold & Resource	90	96	111	150	145
NZ Oil & Gas	25	28	28	30	36
Otter (1)	61	59	40	36	17
Summit	11	9.5	7	10	10
(1) adjusted for 2:5 issue
London gold
($US/oz)	275.05	279.85	265.45	266.70	266.15
2001 high	$US273.15	2001 low	$US256.20

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