THE production guidance for the Cloncurry-based Dugald River mine is set at 175,00t of zinc in concentrate for 2019, despite extreme wet weather and flooding events in North Queensland during the first quarter.

MMG chief executive officer Geoffrey Gao said the impact of severe flooding events around Dugald River and the Cloncurry to Townsville rail corridor in February temporarily impacted production and concentrate transport during the quarter.

“Alternate trucking arrangements and the opening of a temporary rail transfer facility at Hughenden has restored access to Townsville port,” Mr Gao said.

MMG began loading onto rail at a temporary rail transfer facility at Hughenden, about halfway from Cloncurry to the Townsville Port, on April 15. Following track repairs, rail operations are expected to return to normal operations by mid-May

“Dugald River continued to perform strongly, producing 38,665t of zinc in zinc concentrate – a result that is 35pc above the prior corresponding period,” he said.

MGG contributed $250,000 to support flood recovery efforts for the Cloncurry and Townsville regions, with Dugald River general manager Sam Rodda stating the company wanted to do its part to help.

“Like the rest of Australia, we have watched the impact this has had on the people of North Queensland and we want to show our support,” Mr Rodda said.

“Our thoughts are with all the families affected by these events. That is why MMG is committed to working in cooperation with the Townsville and Cloncurry City Councils and Queensland Government to make sure that these funds go to the most appropriate disaster relief organisations in our local community,” he said.

Despite the setback on site, the combined zinc production guidance from Dugald River and Tasmania Roseberry operations – which produced 18,486t of zinc for the quarter with guidance at 85-95t for the year – is expected to hit a total of around 250,000 to 270,000t.

C1 costs (or the Net Direct Cash Cost) are expected to be between US$0.70 and US$0.75/lb due to materially higher benchmark zinc treatment charges (TC’s) in 2019 and additional logistics costs associated with the floods.

“The anticipated cost impact of logistics contingencies implemented to mitigate the wet weather event will add around US$0.04/lb to annual C1 costs,” the company stated in its First Quarter Report.

“This cost impact does not take into account claims covered under our business continuity insurance which are currently under review. In addition, the recently negotiated US$98/t increase in zinc TC’s for 2019 has added a further US$0.06/lb to expected C1 costs.”

Throughout 2019 the mine will continue to be developed to open up steady state number of operating slopes to ensure stable feed to the mill.

Throughout 2019 the mine will continue to be developed to open up steady state number of operating slopes to ensure stable feed to the mill.

Top tier trends

Notwithstanding extreme weather events, MMG’s objective remains to be valued as one of the world’s top mid-tier miners by 2020.

The company is confident the demand for copper and zinc over the short and medium term is strong with global metal stocks at multi-year lows.

This demand for zinc is backed by further reduction in metal stocks, with LME stocks reaching a historical low of 51,000t at the end of the first quarter 2019 – down from 129,000ts at the end of the previous quarter.

The drawdown in LME stocks is mainly the result of reduced smelter production, particularly in China where tightening environmental pressures have resulted in some capacity being shut in advance of the ramp up of replacement facilities.

In addition the price of zinc and copper have rallied compared to the previous quarter at 19.3pc and 8.5pc respectively.

However these trends are not without volatility. Last year the company’s profits dropped 61pc, which MMG citied as due to the impact of ongoing trade wars between China and the United States.

In order to negate these impacts, the company stated in its 2018 annual report that it would drive efficiencies across operations, and appears to have made headway so far in 2019.

There is also a more positive sentiment around trade negotiations between the US and China and Chinese government actions to support economic growth, which seem to have lifted general investor confidence.­­­­­­­

MMG is also confident of three overarching demand megatrends that underpin its portfolio – specifically its two world top 10 producing copper and zinc mines, Las Bambas in Peru and Dugald River.

The first two megatrend revolves around copper demand, namely that the expected de-carbonisation of energy which will drive demand for copper for clean energy sources like wind, solar and nuclear drives supply – plus the expected 20pc of China’s cars being by electric vehicles by 2030.

MMG’s final demand mega-trend is that industrialisation and urbanisation is expected to have high impacts on zinc demand, with 29pc of zinc production anticipated for construction, 23pc for consumer goods, 22pc for transport, and 21pc for infrastructure by 2030.