Oxiana says second quarter copper output in Laos fell 19% after a fire at a plant disrupted production.

As well the company has cut its forecast gold output for the year and its zinc output from the Golden Grove operations in WA have also been cut.

Oxiana merged with Zinifex on July 1 and is in the process of changing its name to Oz Minerals. It released the first quarterly production report for the merged company yesterday.

The shares ended up 8c at $2.08 yesterday.

It said that as a result of the fire, copper output from the Sepon mine in the three months to June 30 dropped to 13,240 tonnes, from 16,271 tonnes a year earlier.

It maintained that the mine remains on schedule to meet a full-year forecast of between 60,000 tons and 65,000 tonnes.

The project to boost copper output at Sepon by a third by 2010 is 60% and first output from its $1.1 billion Prominent Hill mine in South Australia remains on schedule for next quarter, and a new discovery has been outlined nearby.

Production guidance for Prominent Hill for this year “remains at 10,000t copper and 6,000oz of gold and production for 2009 predicted to be 110,000t to 120,000t of copper and 75,000oz to 85,000oz of gold”.

The company said that zinc output from the Century and Rosebery mines (acquired from Zinifex) fell 7.2% to 151,844 tones, from 163,654 tonnes in the same quarter of 2007.

“Record zinc production was achieved for the full year to June 30 2008 with 521,471 tonnes of zinc contained in concentrates produced. This 4% increase was due to better recoveries, stable operations and higher than planned availabilities.

“Zinc produced at Century Mine for the June Quarter was 130,756 tonnes. This was 7% lower than the corresponding period last year, although 3% higher than the March Quarter.

“Zinc production was temporarily affected during the quarter by the planned upgrade of two filter-presses and operational issues with the thickener performance at the port facility.

“Lead production was 5,434 tonnes for the June Quarter, 28% lower than for the corresponding quarter last year due to lower feed grades and stockpiling of lead wet stocks at Century Mine.

“This was done in order to preferentially filter zinc at the port during the period of operational difficulties mentioned above.”

At Rosebery in Tasmania, zinc metal produced for the June Quarter was 21,088 tonnes. This 9% increase on the previous quarter was due to higher ore feed grade and mill throughput.

Zinc metal in concentrates was 9% lower than for the same Quarter last year due to lower feed grades despite 8% higher mill throughput in the June Quarter 2008.

For the financial year ended June 2008, zinc production was 77,925 tonnes, 6% below the previous corresponding period due to lower feed grades despite 7% higher mill throughput.

“Lead, copper and gold production was also down for the financial year ended June 2008 reflecting lower feed grades overall.

At the Sepon, gold operation production was 19,096oz and the new Houay Yeng deposit continues to be extended. But the year’s production forecasts have been revised down to 85,000-95,000oz.

The gold price continued to rise during the quarter; averaging US$888/oz. Unit operating costs were higher during the quarter due to ore inventory adjustments. Direct operating costs have been revised up to between US$500/oz and US$550/oz for the full year.

Golden Grove in WA enjoyed a good zinc production quarter with 37,683t produced. Regional exploration is underway.

“A mill improvement program is underway at Golden Grove to take annual throughput rates to 1.75Mt/a. Throughput rates reached record highs during May but a scheduled shutdown, harder than expected ore and reduced production capacity during the power supply interruption saw annualised rates of around 1.5Mt/a for the June quarter.

“Production forecasts for 2008 have been revised down to 130,000t – 135,000t of zinc as a result of ventilation infrastructure work impeding production. Production guidance for other metals is unchanged: copper at 20,000t to 25,000t, silver at 3 million ounces to 3.5 million ounces, gold at 50,000 ounces to 55,000 ounces and lead at 10,000t to 13,000t.”

And final approvals to develop the Martabe gold mine were received from the Government of Indonesia and construction started.

And at Avebury in Tasmania, the acquisition of Allegiance Mining was completed and first production of nickel concentrates from the Avebury nickel operation starts this month.

The company said copper costs for Oxiana rose:

“Unit operating costs were higher in the June quarter due to lower copper production and higher fuel and acid costs.

“Direct operating costs of US$83c/lb for the year to date are higher than guidance of 72c/lb to 78c/lb. Upward cost pressure will continue through the second half due to higher prices for key inputs such as fuel, acid and lime.”

The company said that “With the exception of copper, base metal prices fell during the quarter. Precious metals prices fell slightly for the quarter but remain near historical highs supported by high oil prices and the weak US Dollar.

“The LME cash copper price averaged US$3.82/lb for the quarter, 8.3% higher than the previous quarter, and 10% higher than the second quarter of 2007.

“Copper mine supply continues to lag demand, suppressing inventory levels and thereby supporting price levels. LME zinc prices fell 13% for the quarter as stocks increased to 150,000t.

“This level is substantially less than forecast by some commentators at the beginning of the year and represents less than 1 week of global zinc consumption.

“The gold price averaged $896/oz for the quarter, down 3.3% from the previous record quarterly average, and 34% higher than the average for the second quarter 2007.”

The company reported favourably on possible expansion plans at and around Prominent Hill in South Australia.

“As reported separately during the quarter (ASX Release 3/07/08) drilling completed to the west of the pit at Prominent Hill has highlighted the potential for the discovery of an additional deposit. Significant intercepts of 26m at 2.1% Cu and 86m at 2.9% Cu were returned from drilling 900m west of the pit.

“These results indicate mineralisation intersected in 2007 (PH07D346 - 50m at 1.8% Cu and 0.6g/t Au) is laterally continuous over a distance of at least 100m. Assays are pending for follow up infill and step out drill holes, several of which have intersected extensive zones (of up to 120m) of visible copper sulphide mineralisation.

“Systematic drill testing of regional targets elsewhere in the broader 4,175km square tenement holding is ongoing.

“Results to date have outlined broad zones of low grade copper-gold mineralisation at the Triton prospect (77m at 0.2% Cu and 0.1g/t Au from 251m) located 7km south-east of Prominent Hill, and strongly elevated precious metals at the Taurus prospect (146m at 0.5g/t Pd + Pt from 236m) located 10km north-east of Prominent Hill. Mineralisation at Taurus is associated with strongly anomalous nickel (up to 1500ppm Ni).

“Follow up drilling is planned at both prospects. Detailed gravity surveys recently completed west of Prominent Hill have generated new high potential drill targets.”

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