MMG faces production challenges this year

Australian zinc mine to close, and copper output costs rise in Laos and Congo

PUBLISHED : Wednesday, 11 March, 2015, 8:48pm
UPDATED : Wednesday, 11 March, 2015, 8:48pm


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MMG, the overseas nonferrous metals mining unit of state-owned metals trading major China Minmetals, will face more challenges this year after it posted a better than expected profit for 2014.

They include the closure of its mainstay zinc mine in Australia in this year's third quarter, and higher production costs from harder to process copper ores in Laos and the Congo. MMG will also have to book more costs from its Las Bambas copper mine in Peru, which is under construction, until it starts generating revenue in the first half of 2016.

"2015 will bring many operational challenges," Marcelo Bastos, chief operating officer of MMG, said yesterday.

MMG on Tuesday night reported a net profit of US$103.8 million and revenue of US$2.48 billion, both flat compared to 2013 levels.

Last year's net profit was much higher than the US$68.4 million average estimate of five analysts in a Thomson Reuters survey. They estimated a net loss of US$6.2 million for this year.

"The beat was primarily driven by [an 83 per cent rise in operating profit] at its Century [zinc mine in Australia]," Barclays analysts, who had expected a 15 per cent increase, said in a note.

But the Century mine is due to be shut by the end of September. It accounted for 41.4 per cent of MMG's earnings before interest, taxes, depreciation and amortisation (ebitda) last year.

MMG also expects higher production costs elsewhere. The cash production cost for one pound of copper at its Sepon mine in Laos is projected to rise to between US$1 and US$1.20 this year, from US$1 in 2014, while that of the Kinsevere mine in Congo is expected to be between US$1.60 and US$1.80, versus US$1.62 last year.

Meanwhile, a commissioning date for the Dugald River project in Queensland, which was expected to replace part of the lost output from Century, remains elusive. It was expected to be commissioned in 2015 with annual output of 200,000 to 220,000 tonnes of zinc, but geological challenges were encountered.