Outlook Shiny as Mine Reporting Starts
By Charlotte Mathews
24 Apr 2006 at 09:51 AM EDT
CAPE TOWN (Business Day) -- Gains in commodities prices in the first quarter of this year will boost profits for South African miners, who will start to report their March quarterly production figures this week.
Even the fact that the rand traded below R6.20/$ for most of the first quarter, while it was generally above R6.40/$ in the December quarter, should not offset strong dollar commodities prices, analysts said last week.
But for underground miners in particular, the fact that the Christmas break falls into the March quarterly report usually reduces production by comparison with the December quarter, unless miners were able to stockpile ore above ground.
Platinum miner Lonmin [LSE:LMI], base metals and oil producer BHP Billiton [NYSE:BHP; LSE:BLT] and gold miner DRDGOLD [Nasdaq:DROOY] are the first groups scheduled to release production reports for the March quarter.
Advantage Asset Management deputy MD Wayne McCurrie said on Friday that, in the December quarter, the average rand gold price was R3,100/oz compared with R3,400/oz in the first quarter of this year. With costs relatively stable between the two quarters, this could translate into an average 20% rise in profits for gold miners, assuming production was maintained.
A second analyst, who asked not to be named, said DRDGOLD’s reported production and profits would also benefit from an internal reorganisation. From December 1, 100% of production from ERPM and Crown Mines was attributable to DRDGOLD, which means DRD-GOLD would report the higher percentage ownership for a full three months in the March quarter.
However, there was a strike at DRDGOLD’s 20%-held Porgera mine in Papua New Guinea during January, which was expected to have affected production, he said.
McCurrie said BHP Billiton was not expected to report any dramatic changes in production for the March quarter but as prices for its basket of commodities had been strong; its profits were likely to be good.
BHP Billiton reported record production in the second half of last year of aluminium, copper, nickel and liquid natural gas while production of copper and nickel also benefited from the acquisition of WMC Resources last June. Iron ore and coal production was flat.
The only production disruption BHP Billiton reported to the market in the March quarter was a one-week shutdown at the Leinster nickel operations in Australia, after a fatality.
Base metals and carbon steel materials were the biggest contributors to BHP Billiton’s operating profits last year.
Spot copper was trading around $3/lb on Friday, having more than doubled in the past year. Iron-ore prices are apparently still under negotiation, with increases of above 10% expected, which is already factored into share prices. Platinum miner Lonmin’s CE Brad Mills said in February the group was on target to produce 1 million ounces of platinum in its financial year to September and 1.9 million ounces of platinum group metals.
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