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Chinese copper miner MMG unveils wider than expected loss, shares tumble

PUBLISHED : Thursday, 09 March, 2017, 12:33pm
UPDATED : Thursday, 09 March, 2017, 10:59pm

MMG, Asia’s largest listed copper miner by output, was under pressure in Hong Kong trading on Thursday, after the company reported a larger than expected net loss for 2016 and unveiled plans to raise copper output by up to 22 per cent this year.

The overseas mining unit of state-backed metals trading giant China Minmetals posted a net loss of US$98.7 million for 2016, including a one-off tax-related accounting write-down of US$63 million and US$52 million of low-grade ore inventory write-downs.

It had a net loss of US$1 billion in 2015, when it booked almost US$900 million of asset impairments on the back of lower metal prices.

Analysts had predicted a net profit of US$54 million for 2016, according to the average estimate of three analysts polled by Thomson Reuters.

Operating profit, as measured in earnings before interests, taxes, depreciation and amortisation jumped 126 per cent last year to US$949 million, thanks to last year’s commissioning of its mainstay Las Bambas copper project in Peru that was acquired in 2014.

This offset the impact of a 12 per cent decline in last year’s average copper price compared to 2015.

MMG is targeting to grow its total copper output by 11 to 22 per cent this year to between 560,000 and 615,000 tonnes.

Last year’s total of 503,510 tonnes exceeded its target of 415,000 to 477,000 tonnes, thanks mainly to growth from Las Bambas.

“The challenges associated with the ramp-up of an asset of this scale were exceptionally well managed,” Jiao said.

MMG has budgeted US$850 million to US$900 million of capital expenditure this year, of which US$330 million has been ear-marked for the Dugald River zinc mine under construction in Queensland, Australia.

“Our strategy has not changed,” chief executive Jerry Jiao Jian said in a filing to Hong Kong’s bourse on Thursday after he took the helm from Andrew Michelmore in February.

“MMG is increasingly important to China Minmetals and our unique model of international experience backed by a major Chinese shareholder is key to our growth.”

Jiao was formerly MMG’s non-executive chairman.

Hong Kong-listed shares of MMG on Thursday closed 0.7 per cent lower at HK$2.92, after falling as much as 2.7 per cent. The Hang Seng Index fell 1.2 per cent.

Michelmore, who led the company since 2009 and oversaw major acquisitions in the Democratic Republic of Congo, West Africa and Peru, will retire on July 1 but remain on in the capacity of a consultant.

For zinc, previously its mainstay product until the decommissioning of its Century mature mine in Queensland last year, MMG aims for output of 65,000 to 72,000 tonnes this year.

It compares with 119,575 tonnes produced last year, below its target of 120,000 to 135,000 tonnes.

The Dugald River project, whose commissioning is expected by the end of the first half next year, is expected to rank as one of the world’s 10 largest zinc mines with raw ore output capacity of 170,000 tonnes.

Meanwhile, Jiao told reporters and analysts after the results that MMG’s decision in early January to use financial instruments to lock in the selling price of 112,000 tonnes of copper at US$2.6 a pound was a “one time” and not a long term policy, as it sought to capture an 18 per cent spike in copper in a week.

The settlement dates fall in the first four months of this year. The copper price has traded mostly above US$2.6 since the start of this year.

Jiao said the company has no overall hedging policy for this year.

(This story has been amended to reflect that the Las Bambas copper mine is located in Peru.)