Miner MMG in no hurry to buy ‘dog’ assets amid downturn
Lower metal prices meant lower economically recoverable amounts of ore from its mines in Australia, Canada and Africa
MMG, the overseas mining unit of state-owned metals trading major China Minmetals, is in no hurry to buy assets even as the supply-demand balance of copper and zinc is tightening amid depressed prices, chief executive Andrew Michelmore said on Thursday.
Speaking after the Hong Kong- and Australia-listed firm posted a US$1.05 billion net loss for last year due to asset impairment arising from lower metal prices, Michelmore said its priority was to get its Las Bambas mine in Peru to start commercial production and reach its output target.
“Lots of companies have been under huge pressure in the past three years due to debt payment obligations and some have made their assets available for sale,” he said. “But many of them are dog assets ... we don’t have to buy anything, our first, second and third priority is to get Las Bambas up and running and generate good cash flows.”
Output ramp-up of the 450,000 tonne-a-year Las Bambas mine, which will be the world’s fourth-largest copper mine when in full production, would see MMG’s main profit driver change from zinc to copper this year as its mainstay zinc mine in Australia entered decommissioning late last year.
Excluding the US$784.3 million non-cash impairment on assets, based on year-end metal prices, MMG booked an underlying after-tax loss of US$264.4 million, compared with a profit of US$99.2 million.
The impairment charge was recorded mostly because lower metal prices meant lower economically recoverable amounts of ore from its mines in Australia, Canada and Africa.
The average price of copper on the London Metals Exchange tumbled 20 per cent last year, while that of zinc fell 11 per cent.
Earnings before interest, taxes, depreciation and amortisation fell 46 per cent to US$420.9 million from US$780.8 million in 2014, and short of the average estimate of US$607.44 million of four analysts polled by Thomson Reuters.
“In 2015, all operations met or exceeded production guidance,” Michelmore said. “Our confidence in the long-term fundamentals of our core commodities, copper and zinc, remains intact.”
Project delays could see the global copper supply surplus shrink to 100,000 to 200,000 tonnes this year, from the 800,000 tonnes estimated around three years ago, he said, adding that rising demand from the United States’ housing sector had helped offset slowing demand growth in China.
Mine closures are expected to see a global zinc supply deficit of 1 million tonnes this year compared with demand of around 14 million tonnes.
MMG’s copper sales edged up 2 per cent last year to 197,338 tonnes, while zinc sales fell 12 per cent to 459,715 tonnes.
MMG aims to produce 415,000 to 477,000 tonnes of copper and 120,000 to 135,000 tonnes of zinc this year. Las Bambas’ target output is 250,000 to 300,000 tonnes of copper.
Its Dugald River zinc mine in Australia is targeted to start commercial production in the first half of 2018, with an average annual output of 160,000 tonnes over 28 years. Targeted commissioning had been delayed by geological challenges.