ZFX zinifex limited

michelmore says zinifex to target copper

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    Allegiance supports new Zinifex bid
    Kevin Andrusiak | February 25, 2008

    ALLEGIANCE Mining has recommended its shareholders accept an increased takeover offer from Zinifex.

    Shares in both predator and target rose on the news. Zinifex gained 3.15 per cent to $10.47, and Allegiance rose 2.8 per cent to $1.10 late this afternoon, as the benchmark S&P/ASX 200 index gained 0.86 per cent.

    At the same time, Zinifex (ASX: ZFX: quote) posted a 74.3 per cent rise in first-half profit and said demand for zinc was expected to remain healthy in 2008, spurred by strong Chinese demand.

    Zinifex boss Andrew Michelmore has cast his eyes firmly in the direction of copper as the lead/zinc producer looks to dress up its operations.

    "At the moment, we are a one-trick pony,'' Mr Michelmore said as the company unveiled a record first half profit of $1.3 billion, up from $751 million.

    "We like the tightness in supply in copper and the tightness in nickel sulphides. We would like copper to be 30 per cent of our total portfolio.''

    While Zinifex is noting some decent copper hits at its Dugald River underground project near Cloncurry, it won't be near enough to satisfy that criteria and Zinifex continues to make noise on the merger and acquisition front.

    And no operation is off limits, but the closer to home, the more Zinifex would feel comfortable, according to Mr Michelmore.

    But for the time being Zinifex will have to be content with potentially swallowing the Allegiance nickel business, after its revised all-cash offer of $1.10 per share found favour with the normally resistant Allegiance board.

    Zinifex might want to have a look at trying to rein in costs. Costs across the business jumped more than 6 per cent in the six months to the end of December, not including increased freight.

    That is well above the rate of growth experienced by Rio Tinto and BHP Billiton, who make a point of trying to pull back costs in what are difficult times for the industry in terms of rising inputs.

    Zinifex said world zinc supply was expected to increase in 2008, switching the market balance from deficit to surplus. “The zinc market appears to have already priced in the expectation of a large surplus this year,” it said.

    This had been reflected in the fall in the zinc price since November 2006, despite the relatively low levels of London Metals Exchange zinc stocks.

    “Zinc prices declined sharply to average 22 per cent lower than the previous half-year,” Zinifex said.

    In contrast, lead prices more than doubled during the half-year to average $US3200 per tonne.

    Zinc output was 8 per cent higher and lead output was 12 per cent higher than for the six months to December 31, 2006.

    Increased production led to stronger sales volumes, with zinc concentrate sales increasing by 13 per cent.

    Nevertheless, Zinifex said that sharply lower zinc prices and a stronger Australian dollar more than offset increased sales and substantially higher lead prices to cut revenue from continuing operations by 27 per cent to $788.6 million.

    The most significant one-off item included in the profit result was a $960.6 million net profit on the sale of Zinifex's zinc and lead smelting operations to Nyrstar.

    Excluding this, profit from the company's continuing operations, comprising the Century and Rosebery mines in Tasmania plus expanding exploration and development activities, was $228.1 million.

    Zinifex previously said it intended to quarantine proceeds from the Nyrstar sale while it examined investment opportunities.

    It declared an interim dividend of 35 cents per share fully franked.

    The lead and zinc miner said that “while cost pressures remain an unpleasant symptom of the resources boom, some evidence suggests the rate of increase may be starting to slow”.

    On the takeover front, Zinifex declared the new offer for Allegiance (ASX: AGM: quote) final. Zinifex raised its bid by 10 cents to $1.10, valuing Allegiance at $852.4 million.

    Allegiance chairman Tony Howland-Rose said the majority of the board intended to accept the revised offer, which better reflected the value of the target's flagship Avebury nickel project in Tasmania.

    The revised offer is scheduled to close on March 7.

    With AAP

    source: http://www.theaustralian.news.com.au/story/0,25197,23270991-5005200,00.html

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