"Wilson HTM analyst A Pedler says Kagara is being valued only on the basis of it's copper operations."
Pretty much given zinc isn't contributing much but I think I just figured out why their C1 costs rose during Q2 so dramatically.
In Q1 - The copper to zinc production ratio was 32% i.e. zinc = 68%
In Q2 - copper was just 27% of total zinc/copper produced
In Q3 (this quarter) - I estimate it will rise to 43%. Up 60% from Q2.
In addition to mining higher grade, this should lower their C1 zinc costs to 79c or possibly less as copper is a much higher margin business for KZL with better bi-product credits. I estimated 81c.
This statement though a bit optimistic.
"The company expects to return to profitability by the end of the June qtr."
Positive cash flow yes but I don't see profitability by the end of June 2012. Not at the rate they are expensing depreciation to the P&L statement. Of course they could have cut costs more than we know, or lowered C1 costs much more. Time will tell. They do need to practise setting low expectations and then over-delivering on them.
At any rate, I think ANZ will be comfortable enough (given the outlook for zinc & copper) to double their debt facility and extend it for 12 months, provided 25-30% in debt is paid off now and interest maintained.
The company may also have no need to raise equity now, but I would not rule it out entirely in the next 12 months.
They will need at least 11 mill to continue to fund the first 2 years of the '2011' 5 year plan (have spent 39 mill to date) and 40 mill by 2014 to partner with someone to shaft AB. I imagine the priority is to get King up and running in 2013/2014.
Given Obama is intent of reflating until the end of 2012, I imagine KZL and asset prices will be higher by year end. Q1 & Q2 FY14, should be very good indeed. They could easily return to profitability in the second half then of 2012.
KZL Price at posting:
17.0¢ Sentiment: Buy Disclosure: Held
