Australia’s
During a recent presentation to analysts and fund managers in Sydney, Australia, the day after the company announced a record A$765 million profit (or A67.9 per share) for 2000, Chief Executive Officer Hugh Morgan said some consolidation was needed to remove the extreme volatility in nickel prices.
“The P/E [price/earnings] ratios of most of our colleagues in the nickel business are pretty low, and that can’t be satisfactory to them, nor can it be to us,” said Morgan. “It seems right that we should now take advantage of the fact that we have a nickel division that is very strong, very well-managed, is right at the bottom of the cost curve and has a long life in front of it.
“We should get out there and take a role in seeking to get some consolidation in the industry. It’s appropriate because the variability in the [nickel] price is starting to demonstrate itself again, notwithstanding very low stocks.”
Between 1999 and 2000, WMC’s earnings (before unusual items) tripled, while cash flow from operations rose 253%. to A$1.18 billion. The dividend for the year totalled A41 per share, compared with A13 in 1999.
The results reflect much higher nickel margins, continuing strong alumina performance and higher profit and cash flow from copper-uranium as the Olympic Dam mine, in South Australia, met and exceeded capacity in the second half.
Production of every commodity was higher in 2000, with records set for copper, uranium, alumina, fertilizer, nickel-in-matte and nickel metal.
The nickel division contributed an operating profit of A$823 million, an increase of 389%. Production totalled 107,000 tonnes nickel-in-concentrate, 103,000 tonnes nickel-in-matte and 61,000 tonnes nickel metal. The unit cost of sales was the lowest ever, at A$3.19 per lb., despite higher royalties and associated costs. Nickel costs are expected to rise 10-15% in 2001, owing to higher energy costs, increased amortization charges for the development of the Harmony orebody, in Western Australia, and third-party purchases of nickel concentrates.
Alumina’s contribution to pretax profits increased 107%, to A$571.9 million, mainly as a result of increased production and higher average prices. WMC’s share of alumina production, held through an interest in Alcoa Worldwide Alumina & Chemicals, increased 5%, to 5.2 million tonnes, whereas aluminum production was higher at 129,373 tonnes. Unit costs were marginally higher, reflecting higher energy costs.
Olympic Dam began to reap economies of scale as it passed its designed production capacity, strongly improving margins and reducing unit costs. The operation achieved an operating profit, before hedging, of A$262.5 million, versus A$23.6 million in 1999, due to a combination of record production of all four products (copper, uranium-oxide, gold and silver), decreased operating costs and higher copper prices.
Production for the year totalled 200,400 tonnes copper, 4,539 tonnes uranium, 70,000 oz. gold and 625,100 oz. silver. Unit cost of sales were lower by A13 at A86 per lb. copper, due to improved copper production and increased by-product credits.
WMC has proposed a further A$100 million expansion at Olympic Dam designed to lift capacity by 20% to 245,000 tonnes per year. The company is currently examining the best way to proceed.
Olympic Dam “is a great enterprise and it has an improving and very encouraging future,” said Morgan.
It was a disappointing year for the fertilizer unit, which experienced a A$52.7-million operating loss. Queensland Fertilizer was hampered by delays in commissioning caused by equipment failure. The project was restarted in September and, during the fourth quarter, produced 153,919 tonnes of di-ammonium phosphate (DAP) fertilizer at 64% of capacity.
Production for the year totalled 326,262 tonnes. January 2001 production improved to 61,500 tonnes, which is 76% of capacity and at the break-even rate. Morgan said the product has been well-received in the market and is recognized as premium-quality DAP.
“The company has certainly been transformed in recent years,” he added. “We are now in a much stronger position. We have an important package of very secure, high-quality, long-life assets representing the bulk of the value of the company. They’re operating in the bottom of the cost curve, and we’re set to deliver sustained results for the future.”
Despite a 134% increase in operating profit of A$35.4 million for the gold division, WMC is concerned it is not getting the recognized that value from the asset. Production totalled 743,109 oz. for the year at a unit cost of A$426 per oz. The realized price, including hedging, was A$552 per oz.
Morgan says various options will be examined, but the favoured one is to merge the group. The company has aggressively been looking at opportunities since November.
WMC is currently in the midst of a prefeasibility study on the Meliadine West gold project in Canada’s far-northern territory of Nunavut, where the company has spent more than $40 million on the project since 1995. “I expect we will be making more commitments toward that project during this calendar year,” said Morgan.
Meliadine West contains a resource of 23.6 million tonnes grading 8.5 grams gold per tonne, or 6.5 million oz., in four closely spaced deposits. WMC holds a 56% interest in the joint venture. Its two Canadian partners,
During 2000, the company paid out A$353 million in dividends, re-invested A$436 million in its businesses and bought back 56 million shares at a cost of A$417 million. Based on current cash-flow projections, WMC expects surplus funds will be available over and above the targeted repayment of A$400 million of debt in 2001. As a consequence, the board of directors decided to extend the share buy-back by another 5%. The company has 1.1 billion shares outstanding, and capital expenditures in 2001 are pegged at A$500 million.
Earlier in the year, WMC announced the discovery of a new nickel prospect in the Musgrave Ranges, northeast of Laverton in Western Australia. Two drill holes, spotted 4 km apart in separate geophysical targets, intersected sulphide mineralization. The first hole intersected 26.5 metres grading 2.45% nickel, 1.78% copper and 0.09% cobalt from 58 to 84.5 metres down-hole. The second hole pulled 37.9 metres of 0.31% nickel, 0.45% copper and 0.01% cobalt from 54.1 to 92 metres down-hole.
The company will evaluate the nickel discovery further in the second quarter, once an agreement has been reached with the local community of Aborigines.
WMC recently acquired the Yakabindie nickel project from
The project adjoins the company’s North Six Mile deposit, near the Mt. Keith nickel operation, and contains a resource of 292 million tonnes grading 0.52% nickel.
In addition, WMC has paid US$15 million for an exclusive option on the Corridor titanium mineral sands deposit in Mozambique and is proceeding with a bankable feasibility study.
WMC trades at A$7.59 in a 52-week window of A$8.39-6.12.
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