Attention ASX Company Announcements Platform
Lodgement of Open Briefing®
Logo Portman Limited |
Logo open briefing Corporatefile.com.au |
Portman Limited
Level 11, The
Quadrant
1 William Street
Perth WA 6001
Date of lodgement: 02-Aug-2005 |
Title: Open Briefing®. Portman. June 2005 Earnings & Outlook |
Record of interview: |
corporatefile.com.au
Portman Limited recently reported Net Income before transaction costs of $46.4
million for the half year to 30 June 2005 (26.4 cents per share) versus $17.0
million (9.7 cps) for the previous corresponding period. Can you explain the main
influences on the increase in Net Income?
MD Richard Mehan
The main influence on the increase in Net Income was higher sales revenue which
resulted from the price increase to benchmark iron ore prices earlier in the year
and an increase in our sales tonnes.
corporatefile.com.au
Did earnings for the first half broadly meet Directors expectations at the time
they recommended the offer from ÐÇ¿Õ´«Ã½? What are your earnings
expectations for the second half?
MD Richard Mehan
Earnings did meet expectations. We expect that well do somewhat better in the
second half because all of the production will be sold at the higher benchmark
price which came into effect from 1 April 2005. We also expect to again push
production and sales tonnes up a little. The combination of those two things
should give us a pretty satisfactory second half.
corporatefile.com.au
The interim dividend for the half year to 30 June 2004 was 4.5 cents per share fully
franked. What dividend policy has the new Board adopted? Do you expect a dividend in
relation to the June 2005 half year?
MD Richard Mehan
At our last meeting the Board decided against paying an interim dividend, largely
because of the cash requirements to develop the Koolyanobbing business in 2005.
We have another board meeting in August to further consider dividend policy, but my expectation is that there will not be a dividend for 2005 given the expansion of Koolyanobbing and also our desire to become more active in business development.
corporatefile.com.au
Can you explain the main areas impacting the balance sheet and income statement from
the adoption of International Reporting Standards?
MD Richard Mehan
There are probably three main issues to mention here. Firstly, on accounting for
currency hedging, adoption of the Standards will affect both the balance sheet and
income statement. The second item is a recognition of capitalised leases which will
have a balance sheet impact only and, thirdly, accounting for mine rehabilitation
which again will have a balance sheet impact only.
corporatefile.com.au
You stated that sales margins improved principally because of the 71.5% increase in
iron ore prices and slightly higher sales volumes. Was the price increase fully
reflected in sales revenues for the June quarter or is there a price lag which will
further lift prices in the second half?
MD Richard Mehan
The price impact was fully reflected in June quarter revenue. The price increases we
received were effective from either 1 January 2005 or 1 April 2005.
corporatefile.com.au
The higher sales revenues were partially offset by increased production costs. Can
you explain the areas in which costs increased? What is the broad outlook for unit
operating costs, particularly with the industry-wide labour and supply constraints
and the progressive move to mining the Northern Tenements?
MD Richard Mehan
Cost pressures are certainly a reality for the whole mining sector. The main
pressures for us have been on mining and haulage costs because we have long term
arrangements covering rail and port charges. Its hard to see any relief in these
areas and its something that were going to have to manage fairly tightly through
this cycle.
corporatefile.com.au
In the half year to 30 June 2005, Portman shipped 2.71mt from Koolyanobbing and
nearly 0.53 tonnes from Cockatoo Island (Portman now 100%). What do you expect for
both operations for the December half?
MD Richard Mehan
In the December half year were hoping to produce around 3 million tonnes from
Koolyanobbing and between 600,000 and 700,000 tonnes from Cockatoo Island. We expect
to be operating at the expanded rate of 8mtpa at Koolyanobbing by end December 2005.
corporatefile.com.au
You expect to be operating at the expanded rate at Koolyanobbing by end December
2005. What are the potential risks to meeting that target?
MD Richard Mehan
The risks bundled up are that the skill shortages and the pressures across the whole
sector have a tendency to push targets further and further away. Its a big challenge
to manage the expansion in infrastructure within the current environment.
We certainly dont expect to have all our rail wagons operational until February 2006 but the other major capital expenditure items are still on target for 2005 completion including the new Esperance storage shed, the crushing and screening plant and the extension to the rail sidings.
corporatefile.com.au
In late 2004, Portman announced that it expected the expansion at Koolyanobbing to
cost $55 million. What is your current expectation for the total cost of the
expansion? What amount has been expended so far?
MD Richard Mehan
We now expect the expansion to cost around the mid 60s in millions of dollars
although that is allowing for the fact that weve modified the design of the crushing
and screening plant and our stockpile capacity. On an `apples for apples comparison
it probably would have been around the low 60s.
Weve so far spent around $30 million on the expansion.
corporatefile.com.au
At 30 June 2005, Portman held $47.6 million of cash and cash equivalents. What
operating cash flow did Portman generate for the half year relative to the previous
corresponding period?
MD Richard Mehan
For the half year to 30 June 2005, operating cash flow was $44.9 million compared
with $12.5 million in the previous corresponding period.
corporatefile.com.au
What capital and exploration expenditures do you expect for the second half?
MD Richard Mehan
In the December 2005 half year we expect to spend about $2 million on exploration and
around $35 million on capital expenditure.
corporatefile.com.au
At 30 June 2005, Portman had 10.5 million tonnes of iron ore in inventory compared
with 10.5 million tonnes at 31 December 2004. Can you explain why you have not been
able to reduce the level of that inventory over the last six months? Is it because of
the ore quality, infrastructure constraints, general market demand or some other
reason?
MD Richard Mehan
Its mainly because of ore quality. In fact our mine plans allowed for a substantial
drawdown in inventory from a number of our long term stockpiles and that has
happened. On the other hand, weve had to put some of the ores mined from our
Northern tenements onto long term stockpiles because they are an inferior quality and
thats why the inventory number overall hasnt changed much over the half year.
corporatefile.com.au
You have stated that some softness is currently evident in the market although you
expect to sell all available production. Is your comment specific to Portmans
products or is it relevant for the broader industry? Can you give some more detail on
the current supply and demand drivers for iron ore markets?
MD Richard Mehan
My comment relates to the broader industry and there are a couple of main drivers.
Steel prices worldwide have softened over the last six months. There has been a
slowdown in Chinese demand for iron ore in the last three months which is a critical
market to us because around 75% of our product goes there. The Chinese government has
tried to take some heat out of the spot iron ore market by restricting the ability
for small steel mills to import. There has also been some drawdown of iron ore
inventories by steel producers. This has lead to what I described as some softness in
iron ore markets, but we dont see that softness as necessarily being sustained. Over
recent days the spot iron ore price has moved back up a little and we are seeing some
scrap steel prices starting to bounce back.
We dont know whats going to happen in every market for iron ore, but our expectation is that China will move back to a growth story pretty soon.
corporatefile.com.au
Can you describe your current exploration activity including the emphasis on infill
drilling and finding new resources? What are the most prospective areas?
MD Richard Mehan
Our current exploration consists of a number of programs on our Koolyanobbing,
Jackson and Windarling leases and also some greenfield areas proximate to our
infrastructure and operations which we aim to explore over the next twelve months.
There are some areas of environmental sensitivity, but we believe we have a good case
to access a number of new areas. Greenfield exploration is going to be an area of
increased focus.
corporatefile.com.au
As at 30 June 2005, ore reserves stood at approximately 91.8 million tonnes. Do you
expect any significant changes to ore reserves or mineral resources from recent drill
results?
MD Richard Mehan
Not substantial changes. The next major reserve and resource positions we announce
will be with our final year results. Those numbers depend on what happens with
exploration between now and the end of the year, but I dont expect substantial
changes.
corporatefile.com.au
You mentioned earlier that Portman would be increasing its focus on business
development?
MD Richard Mehan
There are a number of iron ore projects that we wanted to evaluate with a view to
potential involvement by ÐÇ¿Õ´«Ã½/Portman. Were now fairly well advanced
with those evaluations. I dont want to talk about any specifically, but our focus
over the last six months and for the next year will be on opportunities in iron ore
for the Group.
corporatefile.com.au
Thank you Richard.
For further information on Portman Limited visit www.portman.com.au or contact Richard Mehan at Portman on 08 9426 3333.
To read previous Portman Open Briefings, or to receive future Open Briefings by email, please visit www.corporatefile.com.au
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