merrill lynch 2008 global metals & mining conference ... · 2016. 2017. selective acquisition...
TRANSCRIPT
Merrill Lynch 2008 Global Metals & Mining Conference
Andrew MichelmoreChief Executive Officer
Important NoticeThis presentation is not and does not constitute an offer, invitation or recommendation to subscribe for, or purchase any security and neither this presentation nor anything contained in it shall form the basis of any contract or commitment. Reliance should not be placed on the information or opinions contained in this presentation. This presentation does not take into consideration the investment objectives, financial situation or particular needs of any particular investor. Any decision to purchase or subscribe for shares in Zinifex should only be made after seeking appropriate financial advice. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness or correctness of the information, opinions and conclusions contained in this presentation. To the maximum extent permitted by law, Zinifex Limited and its affiliates and related bodies corporate, and their respective officers, directors, employees and agents disclaim any liability (including, without limitation any liability arising from fault or negligence) for any loss arising from any use of this presentation or its contents or otherwise arising in connection with it. The forecasts and other forward-looking statements set out in this presentation are based on a number of estimates, assumptions and pro forma adjustments that are subject to business, economic and competitive uncertainties and contingencies, with respect to future business decisions, which are subject to change and in many cases outside the control of Zinifex. The forecasts contained in this presentation may vary from actual financial results, and these variations may be material and, accordingly, neither the Company nor its Directors can give any assurance that the forecast performance in the forecasts or any forward-looking statement contained in this presentation will be achieved. All figures are expressed in Australian dollars unless stated otherwise.
2
Strategy
Zinifex strategy transforms companyCompleted Nyrstar smelter demerger - $1.8 billion cash released to potentially grow mining business
Smelters divested
Nickel added to portfolio
Rosebery upgrade
Oxiana merger
Century adding life
Allegiance acquisition nears completion. Avebury mine being commissioned with first production due shortly
Creates a major diversified mining company ready to benefit from exceptional demand for metals
Exploration is expanding near mine deposits that may extend mine life at Century
Excellent drilling results will likely see a material Rosebery resource upgrade. An expansion study is underway
4
Dugald advances
Dugald River feasibility study completion in Dec 2008 – copper potential being modelled
• Delivers a long and balanced pipeline of development opportunities
• Increased capability to accelerate value delivery from existing asset portfolio
• Enhanced capacity to pursue both an organic and an acquisitive growth strategy
GrowthGrowth
• Strong financial position, cash flow and earnings capability• Highly efficient current operations, and attractive development
and exploration portfolios• Enhanced investor attractiveness resulting from increased
scale, liquidity and diversification
StrengthStrength
• Increased commodity and geographic spread of assets• Improved earnings diversification• Skill base applied to a more diverse set of opportunities
DiversityDiversity
Zinifex/Oxiana merger rationale
5
Merger terms • 3.1931 Oxiana shares for every Zinifex share
Structure • Merger unanimously recommended by both Boards• Implemented via Zinifex Scheme of Arrangement• Approximately 3,101 million shares outstanding upon completion• Mutual break fee of $55 million
Ownership • Oxiana 50% / Zinifex 50%
Company name and HQ
• New name for the combined entity to be determined• Corporate headquarters in Melbourne
Conditions • Zinifex shareholder vote (75% of shares voted and 50% of shareholders voting)
• Other customary conditions and Court approval
Indicative timetable
• Scheme Booklet dispatched 16May 2008• Zinifex shareholder vote 16June 2008
Merger summary
6
Laos55%
Australia45%
Laos22%
Australia78%
Zinc63%
Lead6%
Gold5%
Silver4%
Copper23%
Zinc87%
Lead7%
Gold1%
Silver4%
Copper1%Zinc
30%
Lead4%
Gold10%Silver
4%
Copper53%
Australia100%
20071 gross revenue by metal2
20071 gross revenue by geography
Broader operational and geographic footprint provides stability
ZinifexOxiana Combined
+
+
=
=Note:1. Pro forma for the year ended 31 December 20072. Zinifex revenue split based on production for the year ended 31 December 2007 multiplied by average London
Metal Exchange and Comex metals prices for the equivalent period
Prominent Hill development
Indonesia and Canada
A diversified company
7
Financial strength to support growth strategy
Source: Company financial reportsNote:1. For the year ended 31 December 2007. Based on continuing operations for Zinifex
• Combined pro forma EBITDA of $1,666 million for 2007¹
• Combined pro forma NPAT of $918 million for 2007¹
• Combined cash on hand of $2,474 million as at 31 December 2007
• Combined interest-bearing debt of $539 million as at 31 December 2007
• Combined net cash balance of $1,935 million as at 31 December 2007
Strong cash flows and balance sheet
8
The combined company is well positioned to deliver superior growth
Prominent HillUG expansion Stage 2
Oxiana project
Zinifex project
2008 2009 2010 2011 2012 2013 2014 2015
Prominent HillCopper / gold project
High LakeZinc / copper
Dugald RiverZinc / lead / silver
Izok LakeZinc / copper
MartabeGold / silverproject
Prominent HillUG expansion Stage 1
Golden GroveCopper sulphide pit
Golden GroveOxide pit
Sepon GoldPrimary gold project
Sepon CopperCopper expansion
2016 2017
Selective acquisition strategy to accelerate growth
RoseberyUpgrade
Strong and complimentary development pipeline
AveburyNickel
9
• Zinifex owns more than 96%• Compulsory acquisition to achieve 100%• Zinifex has Board and Management control
StatusStatus
• We like nickel – favourable market attributes• Attractive and low risk entry into nickel sulphides• Adds near term cash flow with scope for expansion
Strategic fit
Strategic fit
• Major strategic relationship with Jinchuan Group Ltd• New mining team with skills & expertise in short supply• Intellectual property in nickel metallurgy
New capabilityNew capability
• Strong commitment to grow base metal mining on west coastTasmaniaTasmania
Allegiance acquisition
10
Allegiance: in Zinifex’s backyard• Advantaged position on west coast of Tasmania
with zinc and nickel
Tasmania
Hobart
Avebury Project
Rosebery
Avebury Project
Queenstown
Burnie
11
• Construction of the processing plant is nearly complete• Pre-production testing to commence May• Wet commissioning of concentrator throughout June• Production and ramp up to full capacity across Sept 2008 Quarter
Avebury near commissioning
12
Expected EBIT of A$80-90 million
• Full year at design capacity (2009)
• 8,500 t/a – nickel in concentrate
• US$28,000/t LME nickel
• A$=US$0.95
• Nickel recovery 80% +/- 2½%
• Operating cash costs US$2.20/lb
• 22% nickel in concentrate
Material and high margin
13
Rosebery mineProject Horizon • drilling has significantly
extended known mineralised zones
P Lens
K Lens
V Lens
NED
19 Level
PW
Decline
V LENSY Lens
SLEDSLED
PK LensW Lens
B North
NU
C L
eg 2
0 250 500
Mined - out or inaccessible (some remnants and pillars)
LEGENDOre Reserve Stopes to be Mined
Mineralisation Outline
Known Subeconomic Mineralisation
14
P Lens
K Lens
V Lens
NED
NU
C L
eg 2 19 Level
0 250 500
PK Lens
W Lens
P
W Decline
V LENSY Lens
X Lens
SLED
March 2007
December 2007
Rosbery Horizons expand again
• 2007 drilling has extended mineralisation in multiple zones
• Further material resource upgrades are expected
• Goal is a mine life of 2030+ (>20 years)
• As a consequence an optimisation study is underway to: - Examine options for a new tailings dam - Optimise mine haulage - Renew ore processing facility - Significant cost savings would be realised
15
Century – adding mine life
• Multiple high grade near mine vein style deposits like Silver King have the potential to add 6-12 months each to Century’s mine life
• Exploration for Century style ore bodies is also underway on more than 4000 km216
Dugald – the worlds best undeveloped zinc deposit• Dugald River is one of
the worlds largest undeveloped Zn-Pb-Ag deposits
• Wholly owned by Zinifex
• Close to infrastructure
• Conventional mining & processing
• High in-situ value
• Excellent potential for future discoveries
17
Dugald overview
• 2 Mtpa underground mine over 16+ years
• Initial mineable inventory (non JORC Compliant) 31Mt @ 11.8% Zn, 2.1%Pb, 44g/t Ag.
• Average annual output: ~200kt Zn, ~30kt Pb, 1.5Moz Ag in concentrates
• Marketing indicates strong demand for Dugald conencetrates
• Competitive capital & operating costs
• High potential for copper orebodies
18
Infrastructure• Grid power from Mica Creek (gas), transmission line from
Chumvale 55km to SE
• Water from Lake Julius pipeline ~7km north of project site
• Sealed 2 lane modern road access from Cloncurry
• FiFo using Cloncurry Airport & accommodation camp on site
• Concentrates truck to Cloncurry/Yurbi and railed to Townsville for export.
19
Market Outlook
Zinc surplus forecasts exaggerated?
• Commentators forecast large zinc surpluses (>1mt for 2008/9) when zinc prices were high (>$4,000/mt)
• Zinc prices have fallen and so too have expectations of large surpluses• Delays, interruptions and falling profitability at high cost mines is reducing
projected supply while demand remains reasonable• LME zinc stocks remain low and support a modest 2008 surplus forecast• Further disruption to supply could see zinc prices rebound• 2008 treatment charges have increased reflecting increased concentrate supply
but spot TCs have now stabilised21
0
100
200
300
400
500
600
700
CRU ILZSG Macquarie
2008 Forecast Zinc Market Surplus‘000 tonnes
Lead prices ease but are well above average
Source: CRU August 2007
• Lead prices have eased but remain exceptionally strong on low global stocks
• Lead prices remain susceptible to further supply shocks
• 2008 lead treatment charges have risen in response to Chinese efforts to curb lead exports
LME Lead Stocks and Prices (Jan 03 - Current)
0
50,000
100,000
150,000
200,000
0
1000
2000
3000
4000
Tonnes US$/Tonne
22
Business Outlook
Century
• Excellent zinc and lead production, 8% and 12% ahead of last year respectively enabling higher sales
• Accelerated waste rock pre-stripping on track and will rapidly taper from FY10
• Project PERcent
– New ball mill is commissioned ramping up to full capacity
– Zinc recoveries ahead of target
24
Rosebery
• Zinc and lead production moderately lower than last year, 5% and 2% respectively
• Higher ore throughput unable to fully offset lower grades
• Production for June half expected to be moderately better than 1H08
• $30m ventilation shaft approved to enable mining of deeper and hotter zones
• Drilling at Jupiter, 5km south of Rosebery has potentially identified a new mineralised area with Rosebery style mineralisation close to surface
25
FY08 Outlook
• Substantially lower average zinc prices
• Higher zinc and lead treatment charges in 2H08
• Cost pressures from energy, labour and other commodities
• Plus increased exploration activity and merger costs
• Will more than offset higher zinc and lead production and sales
• Resulting in lower expected earnings in the second half of FY08
26
Financial Results
Record half year net profit
• Assisted by profits on sale of: - smelters to Nyrstar - $961 million - investments - $56 million
(A$m)
Revenue from continuing operations
EBITDA*
EBIT*
Profit after tax
Earnings per share ($)
EBIT Margin %*
* Excludes discontinued operations
HY08
788.6
469.9
342.3
1,309.7
2.69
43
HY07
1,079.3
780.9
680.5
751.2
1.54
63
28
Zinifex Continuing OperationsEBIT Variance Analysis6 Months to 31 December 2007
0
250
500
750
1,000
680.5 116.7 (97.0) (346.7) (47.5) (27.2) (25.1) 12.8 75.8 342.3
HY07EBIT
Volume ExchangeRate
Price Costs Dep'nand
Amort.
Explore & Dev
Royalties Sale ofInvestments
HY08EBIT
A$m
29