report is out, page-13

Guys i love your continued optimism in the face of a continual stream of bad news, but IMO this is a mess that management created by not managing, or choosing to ignore the downside risk. As we all know, base metal prices are cyclic and if you plan on being in business for a long period of time, eventually you are going to face a period of lean commodity prices. So it is not “bad luck” as some might suggest when these things happen. Effective management teams plan for downside risk....simple as that.

Lets look at the record of underperformance and misguided CAPEX in recent years.
1. Pre GFC KZL spent something like 80M on a half built concentrator at Mangana. Shareholders paid dearly for this investment as a highly dilutive capital raising was required to pay back money borrowed to construct the Munguna concentrator. 5 years on this is still sitting around half built with no prospect of being finished in the short to medium term.

2. The Thalanga experiment has been a disaster. Originally, 25M was borrowed from GHG for the development of Vomacka. If you go back to the release at the time, this short term loan was to be repaid from cash flow from Vomacka. 19M of this remains outstanding and Vomacka is depleted. In addition, a substantial amount of CAPEX has been sunk into the development of West 45, which is no on care and maintenance.

3. Lounge Lizard, the Manguna underground mine, MUX have all underperformed their expected valuations....implying that management have been continually overly optimistic

I like a leaner KZL that concentrates on its higher margin operations. The new MD seems to be less of a Cowboy that Kim Robinson and i believe is the right man to get KZL back on track. IMO, the following key steps are required to get KZL back on track:
1. Obviously a return to a cash flow positive state is required (the announced restructuring should achieve this)

2. Pay down debt and restore the balance sheet. This will significantly reduce the risk of future exploration and development projects being halted every time they have a bad quarter.

3. Apply a more conservative, less aggressive and comprehensive assessment methodology when making decisions around CAPEX.

4. Finish the Manguna plant and get King Vol into production...forget about Thalanga for now.

For the optimists out there, there could be some good buying opportunities over the next few months...i will consider if the price drops to around 15c.