MIM still treading water

While the Mount Isa operations upon which the company was founded remain one of its main stays, the major problems facing the company are external. These are low commodity prices and an even lower level of investor support. The latest interim result hasn't helped much either, being a disappointing net loss of $37m with a dividend of 1.25 cents per share (unfranked) payable on March 29, 1999. This result was adversely affected by:

• dramatic falls in already low commodity prices offset, in part, by a lower average US$ exchange rate;

• scheduled interruptions to production caused by work on planned upgrades and expansions;

• abnormally high air quality control down time at Mount Isa.

Increased total copper, gold and coal sales volumes leading to higher sales revenue offset these factors to some extent while continued improvements in cost and operating performances across the group helped also. This is particularly true at Alumbrera, Ernest Henry and in the coal operation where production continued to increase and additional sales contract volumes were secured.

So what's keeping investors away? The bottom of the cycle is the time when companies like MIM should be picking up a few bargains among the hordes of distressed smaller miners. But by the time these bargains started to appear, MIM was already highly leveraged. However, this is starting to change. Although the share of cashflow from operations increased 16% to $144m ($123.7m first half 1997/98), free cashflow, the funds available to grow the company after providing for capital expenditure and proceeds from asset sales, rose to $296.3m ($165.7m first half 1997/98).

Marking time

Instead of drawing down more debt, as has happened in the past, these funds were able to actually grow the company. Capital expenditure needed for growth is expected to reduce significantly during the second half following the completion (or close to it) of several large projects although the level of debt at $1.78bn remains a substantial concern.

Against a background of an uncertain economic climate and continued weakness in commodity prices, the strategy remains one of focusing on core activities, improving operational performances and on-going cost reduction programs.

Since our last brief review on February 26, 1999 (Hold - $0.70) the company's share price has marked time. Even if recent mine closures start to have an effect on production levels it will take a while before they filter through to a reduction in stockpiles and flow on to an improvement in metal prices. Although MIM has had its fair share of difficulties it does seem to be keeping its head above water as the tide continues to go out in the resources sector.

When commodity prices finally turn MIM will be a big beneficiary but when that happens is anyone's guess. This means that MIM isn't worth buying just yet but current investors should continue to HOLD.