Australia's Kagara to cut zinc output on lower prices

SYDNEY Wed Oct 29, 2008 9:03pm EDT

SYDNEY Oct 30 (Reuters) - Australian miner Kagara Ltd <KZL.,AX> on Thursday cut its 2008/09 zinc production target by 12.5 percent, citing "difficult times" caused by the dramatic drop in the metal's price.

Kagara's new forecast of 35,000 tonnes, down from 40,000 previously, also places in doubt Kagara's ability to meet a longer-term annual target of 100,000 tonnes of zinc in about two years, a company spokesman told Reuters.

The revised output plans are designed to help reduce overall capital expenditure by A$70 million and will delay indefinitely final construction of the company's Mungana zinc ore treatment plant in Queensland, eastern Australia, the spokesman said.

Completion of the plant was scheduled for mid-calendar 2009, allowing for an increase in mining of nearby deposits.

"Given the situation in the markets, this is a prudent move at this time," the spokesman said.

At the same time, Kagara will move to increase copper production over the 2008/09 financial year to around 35,000 tonnes, by exploiting its highest margin deposits, the spokesman said.

Korea Zinc Co. Ltd. (010130.KS) buys all of Kagara's zinc. The copper is sold to India's Sterlite Industries (India) Ltd. STRL.BO.

Zinc MZN3, mostly used as an anti-corrosive in galvanised steel, sells for around $1,140 a tonne at the London Metal Exchange, less than half the price in January.

Copper MCU3 has faired only slightly better, with the price currently around $4,650 a tonne versus than $7,000 in January.

Kagara, which produced 4,411 tonnes of contained zinc and and 9,472 tonnes of contained copper in the quarter ended Sept. 30, was also scaling back zinc exploration work on its Admiral Bay lode in Western Australia, the spokesman said.

"In these difficult times, these changes will have the impact of decreasing our capital expenditure, increasing our copper production for the 2008/09 year to the upper end of previous guidance and decreasing our zinc production, whilst maintaining strong cash flows and profitability for the 2008/09 financial year," Executive Chairman Kim Robinson said in a statement. ($1=A$1.50) (Reporting by James Regan; Editing by James Thornhill)

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