In KZLs own words both the north qld Cu and Zn businesses are positioned half way up the upper quartile on the cost curve?..not a good place to be in a downturn. If Zn and Cu drop much further KZL will be in trouble. Possible ramifications may include pulling the pin on exploration (again) and cancelling the CSE bid or being forced into a fire sale of Lounge Lizard.
Long term, IMO, the strategy is sound. PEM underwent a similar restructure a few years back and it has resulted in increased production and lower costs. I am hopeful that the Q1 production results will surprise on the upside and I think they will because the MD would know what the likely production results will be considering there is only 2 weeks left in the quarter.
I also think the sale of Lounge Lizard is a sound move as over 200m in CAPEX is required in north qld over the next 2 years to achieve the 30/120 objective. I would prefer that this CAPEX is sourced from divesting a non-core assets rather than taking on debt. It certainly can?t be funded from cash flow.
Lets hope things don?t get pear shaped in the short term and I?m not convinced they won?t!
KZL Price at posting:
41.0¢ Sentiment: Hold Disclosure: Held
