Zinc Or Swim For Perilya As Production Slumps
The Age
Saturday November 1, 2008
BROKEN Hill miner Perilya is doing it tough. The zinc producer, a takeover target of CBH Resources, appears to have bled nearly $40 million in cash in the September quarter, not counting funds applied to debt repayments and redundancies.
Perilya, which produced zinc at an average cost of $US1.36 a pound up from $US1.01 a pound in the June quarter lost US49 on every pound sold.During the quarter, Perilya began downsizing its Broken Hill operations and hopes its cash costs will fall to US60 to US65 a pound from January.But at those production costs, the mine would still be uneconomic at the spot zinc price of US52 a pound.Perilya ended the quarter with $22.3 million in cash - $4.2 million lower than the June quarter.During the September quarter, Perilya received $67.8 million from closing out its hedgebook and selling some of its illiquid commercial paper at a discount.It applied $10 million to repaying debt and $20 million to redundancy charges, meaning its operations appear to have been cash flow negative to the tune of about $37.8 million.If its mine fails to be cash flow positive soon, Perilya's $22.3 million in cash and $22.6 million in hard-to-sell commercial paper may only last it a few quarters before it is forced to seek more funding or close its operations. Perilya's executive chairman, Patrick O'Connor, said the cash burn rate during the current quarter would be "nowhere near" the rate during the September quarter."We have reduced the size of the operation to put us in a break-even situation going forward," he said, although he admitted the operation would not break even at the spot price.He hoped production cuts by other zinc miners would see a boost in the zinc price."Fifty per cent of production is uneconomic," he said. "Something will give."
© 2008 The Age
