report overview

EAF dust/zinc sulphate project

We processed EAF dust from Smorgon Steel and Comsteel for the full year with Onesteel dust also treated until September 2006, when cheaper treatment fees resulted in the Onesteel dust being redirected to a competitor.

A total of 13,743 tonnes of EAF dust was processed for the year with 1,815 tonnes of zinc sulphate from treated dust sold into the domestic agricultural market. Improvements in product quality, zinc sulphate pricing and process optimisation saw profits emerge from both the EAF dust treatment fees and sales of zinc sulphate. The favourable outcome was the result of a committed program of product and cost improvement to ensure support from the zinc sulphate market for a long term association with Hydromet.

With the zinc metal pricing reaching record heights during the year the EAF dust has attracted others claiming to be able to treat or blend the dust to produce a saleable concentrate which would be of interest to zinc smelters. To the best of our knowledge none of the competitors have demonstrated a proven zinc recovery process however they have all indicated treatment fees/gate fees at low levels which Hydromet is unable to match. Our clients Smorgon Steel and Comsteel have accepted an offer from a competitor which will effectively end Hydromet’s involvement for the time being. Despite competitor claims Hydromet remains the only EAF dust processor to have a proven zinc recovery process suited to the particular contaminant characteristics of the dust.

Regardless of a decision from Smorgon/Comsteel we will complete valuable plant trial work to assess the commercial value of electro winning the zinc in metal form for consumption by the zinc galvanising industry.



Tomago facility

Minmet emerged strongly from the affects of a fallen selenium market in the 2005/06 financial year with better than forecast productivity, revenue and profit contribution for the year.

The selenium price collapse of 2006 was short lived with pricing recovering from a low US$19 per lb to $41 per lb in June 2007. Although the market has softened from June the slow down is associated with the northern summer holiday period slowing production of selenium based products. Steps taken by Hydromet during the fall of 2006 will minimise the impact of market conditions on our operations and enable us to accommodate the annual slow down cycle.

We have been successful in securing more selenium bearing feed for Minmet and expect the 2007/08 financial year to result in record productivity with respect to feed stocks and selenium sales. Treatment fee income will also increase along with other product opportunities resulting from the additional volume to be processed.

The Minmet facility is now a dedicated selenium/precious metals processing site with a firmly established reputation for the treatment of complex residues requiring the specific technology developed at the facility to extract value from the materials processed on behalf of our worldwide client base.

Our strategy for Minmet is to expand the specialised technology based segment further in 2008 to define other product opportunities to grow the business further through associations with new generators and product customers.



Unanderra facility

The 36,000 tonne per annum used lead acid battery (ULAB) recycling plant commenced processing in November 2006 with first lead product sales made in December. We reached the present monthly target of 1,000 tonnes in March and have since exceeded the March processing level. For the nine months to June 2007 we processed 320,000 batteries weighing 4,700 tonnes yielding approximately 2,600 tonnes of lead and 213 tonnes of recyclable plastic.

Sales of our lead products have to date been made to customers in Australia, Thailand, Germany and New Zealand. We have enjoyed the benefit of a record lead price over the financial year and have continued to secure long term sources of used battery feed to meet expected increased productivity in the 2008 financial year. We plan to introduce an additional upgrading stage for our intermediate lead products at Unanderra to optimise both our metal and oxide grades to increase our customer base and improve financial returns. This is particularly important in the present high demand/price climate and will also be of benefit when the lead price falls back to more traditional levels. We anticipate approval to increase our annual ULAB processing rate from 12,000 tonnes to 36,000 in August 2007 and plan to increase operating hours to meet the gradual increase in productivity.

Applications have been prepared for submission to the relevant authorities for the construction of a secondary lead smelter at two locations considered suitable for this expansion. The smelter option will enable Hydromet to maximise the financial return on lead recovered from the battery recycling plant and capitalise on revenue and profit contribution substantially.



Hobart facility

Hydromet has provided a treatment solution for Mercury Waste for our client. The process is costly and is currently being evaluated along with other prospective solution providers. We expect a decision by December 2007.



The Stanton Prospect

During the year a subsidiary entered a sale option agreement with a party interested in combining the Stanton resource with other mining projects under their consideration. The option agreement will run into the 2008 financial year while further evaluation is completed by the interested party.



Dividends

After the balance sheet date the directors proposed a fully franked final dividend of 0.1 cents per ordinary share. The dividends are payable on or before 9 November 2007. The total amount of the dividends payable is $315,466. The dividends have not been provided and there are no income tax consequences.

The financial effect of the dividends has not been brought to account in the financial statements for the year ended 30 June 2007 and will be recognised in subsequent financial reports.



Likely developments

• We will complete valuable EAF dust/zinc product development program work in the December 2007 half year.

• The battery recycling project contribution will continue to grow as we obtain increased processing volume approval and customer base. Enhancement and quality improvements will be introduced to increase sales opportunities for our lead products at the same time as we make application to build a secondary lead recovery plant to optimise lead value and cement a sound sustainable position in the used lead acid battery industry in Australia.

• We expect a clear position on the secondary smelter opportunity to be available by December 2007 with likely location of the plant to be confirmed.

• The strategy adopted to expand our selenium/precious metal business at Minmet will continue to ensure Hydromet remains a substantial player in this niche business. Further information about likely developments in the operations of the Group and the expected results of those operations in future financial years has not been included in this report because disclosure of the information would be likely to result in unreasonable prejudice to the Group.