Mirabela Nickel (ASX:MBN) is a mining company focused on the production and sale of nickel concentrate.

The miner’s key asset is the Santa Rita nickel operation in Bahia, Brazil.

MBN achieved its production ramp up goals in 2011, successfully upgrading the Santa Rita’s plant capacity to 7.2Mtpa of ore milled, from 4.6Mtpa in 2010.

However the ramp up was also accompanied by rising cash costs, which detracted significantly from an otherwise solid set of December 2011 quarter production numbers.

Costly cash

Mirabela Nickel announced its December quarter production report today.

Nickel output climbed 9% from the previous quarter, helping MBN to meet its 2011 production target of 15,854 tonnes.

However the production numbers were overshadowed by a disappointing rise in cash costs.

Cash costs jumped 11% on the quarter to US$7.42, as the higher output was accompanied by higher plant costs and lower productivity.

Additionally, mining costs rose amid increased expenses relating to drilling activity.

The ramp up in quarterly production was thus poorly executed due to the company’s own efficiencies as well as industry cost pressures.

Risk on

Another concerning aspect of the production release was the almost 50% fall in MBN’s cash holdings from the prior quarter.

A significant part of that outflow was due to the closing out of the company’s nickel and copper hedges.

The lower cash balance in addition to a new US$50 million debt facility entered into by a Brazilian subsidiary, raises MBN’s risk profile in a period of economic uncertainty.

Outlook

MBN has raised its 2012 production guidance, targeting 20,000 – 22,000 tonnes of nickel output.

As mentioned, however, greater output is not necessarily a good thing when it is accompanied by higher cash costs.

Mirabela Nickel has commenced a cost reduction program, which aims to lower cash costs towards US$6/lb by the end of the year. However that is largely dependent on the proper implementation of the program.

Although a return to steady state production may help, cost reductions will also be linked to the favourable renegotiation of MBN’s major contracts.

Having recently closed out of its nickel hedges, MBN is now fully exposed to the movement in commodity prices.

Unfortunately, there is also considerable uncertainty surrounding nickel prices, with brokers Morgan Stanley and Goldman Sachs recently downgrading their forecasts amid concerns about oversupply.

We at Australian Stock Report believe these headwinds are likely to weigh on MBN’s share price for a while yet.

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Kagara (ASX:KZL) is a copper, zinc-lead and nickel miner, with operations in North Queensland and WA. It has four operational hubs in North Queensland – Mungana, Mt. Garnet, Balcooma and Thalanga.

KZL’s North Queensland mines supply ore to three treatment facilities in Mt. Garnet (copper and polymetallic) and Thalanga (polymetallic).

A strategic review determined KZL’s nickel operations at Lounge Lizard, WA to be non-core, and so the group has put the assets up for sale.

The company faced major operational issues in FY11, which culminated in a $32.2 million loss.

An uncertain outlook for commodities has come at a poor time for Kagara, with its recently announced capital raising highlighting potential cash problems at the company.

Although KZL recently unveiled a five year turnaround strategy, we feel there are significant near-term headwinds that are likely to keep its share price under pressure.

Operational issues

KZL’s September quarter activities report revealed a 3% fall in copper output from the June quarter. However that was balanced by a 13% rise in zinc output.

Cash costs for both commodities fell on the quarter, reflecting the company’s focus on protecting its margins in the face of declining prices.

The quarterly output result followed a hugely disappointing FY11, which was characterised by a $32.2 million loss (compared to a $3.2 million profit in FY10).

The loss came on the back of a $48.5 million write-down of KZL’s Mt. Garnet and Mungana mines (Mungana Mines: MUX is 61.9% owned by KZL).

Production over the year was impacted by a prolonged wet season.  This was accompanied by rising cash costs over the year, which came about due to lower zinc output and adverse FX movements.

Uncertain commodities outlook

Europe’s debt crisis coupled with signs of a slowdown in Chinese economic activity has clouded the outlook for KZL’s key commodities – copper and zinc.

Copper has slumped around 17% from the highs it created in July, whilst zinc has suffered similar falls amid persistent concerns about global oversupply.

Copper is usually seen as an economic barometer, and its recent weakness suggests diminishing prospects for global growth.

Although longer-term we expect stronger demand for the red metal, we see more weakness in the near-term as Europe struggles to end its debt crisis.

Cap raising highlights problems

Kagara’s problems ultimately led to a $25 million capital raising (completed today), which it said was to finalise the acquisition of the Einasleigh Copper Deposit at Mt. Garnet.

Einasleigh was bought from Copper Strike (CSE) for $16 million, as part of KZL’s push to ramp up production in the next five years.

The announcement of the raising was surprising considering it came less than three months after KZL unveiled its five year turnaround strategy.

The capital raising suggests KZL is facing cash problems, with the group in a precarious position as it looks to significantly increase exploration activities in North Queensland.

Worryingly, this leaves KZL vulnerable to continued declines in copper prices and any unforseen production delays.

Outlook

KZL has been hit hard in recent times due to operational issues at its mines.  A prolonged wet season led to production delays and write-downs at Mt. Garnet and Mungana, which was reflected in a massive loss for FY11.

Although KZL is to embark on a five year turnaround strategy, it has set itself lofty exploration and production goals. The group aims to produce 30,000tpa of copper by FY15 (FY11: 22,530t) and 71,000tpa of zinc by FY14 (FY11: 40,125t).

KZL’s immediate focus, however, is on ensuring it has enough cash to cover near-term development expenses.

The recently completed capital raising is a worrying sign, and suggests KZL has little room for error in a very uncertain global economy.

A worsening of Europe’s debt crisis could see copper prices come under further selling pressure, thus impacting KZL’s margins.

As a result, we feel there is further near-term weakness in store for KZL’s share price.

KZL’s woes have seen it being a major mover on the ASX, it has plummet more than 60% in 2011.

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Bluescope Steel (BSL) is the leading steel company in Australia and New Zealand, supplying a large percentage of all flat steel products sold in these markets.

It has been one of the shares to sell in recent times due to the soaring Aussie dollar and surging input costs.

Today, BSL reported an FY11 net loss of $1.05 billion, which was worse than analyst estimates.  No final dividend was declared.

The result was impacted by restructuring costs, although BSL still reported an underlying loss amid the soaring AUD and higher iron-ore and coal prices.

In response, BSL will shut down one of its two blast furnaces, whilst the closure of its export business will result in the loss of 1,000 jobs.

BSL was bearish about the immediate outlook, saying it was expecting a significant net loss in the 1H12 due to the strong AUD, high input costs and weak demand.

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Australian Agricultural Co. (ASX:AAC) is the oldest continuously operating company in Australia, supplying domestic and export beef consumers.

AAC is the largest beef cattle company in Australia, and is managed from Brisbane, with regional management located on each station. The business also has one of Australia’s leading composite breeding programs.

AAC has been one of the shares to sell since April, tumbling from a high of $1.70 to current prices around $1.40.

On 25 July, AAC reported a 1H11 net loss of $12.6 million.  This compares to a net loss of $12.2 million a year earlier.

However, revenue jumped 53% on-year to $58.2 million, driven by an increase in cattle sales and favourable seasonal conditions.

AAC reaffirmed FY11 EBITDA guidance of $50 – $60 million, taking into account the Meteor Downs station sale, favourable market conditions and the government’s repeal of the live cattle ban.

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CSR Limited (ASX:CSR) is a leading building products company with operations throughout Australia and New Zealand.

CSR’s stock dropped dramatically over 2008 into 2009 as the company suffered from two angles: a poor sugar industry and a dire building sector.  It was previously considered among the market’s blue chip stocks.

Investors were unsure of the combined effect of its exposure to two completely different industries.

On the one hand was a subdued housing market whilst on the other was a less cyclical, fairly defensive sugar industry.

Due to problems with the two businesses, CSR went through a demerger. CSR established a sugar and renewable energy company – Sucrogen. This was later sold to Wilmar International for $1.75 billion.

This left CSR as a traditional manufacturing group, supplying building products in Australia and New Zealand. The group also has an interest in aluminium smelting and property.

The business is currently facing some challenges, particularly a challenging building and housing sector.

Divesting assets

Over the past two years, CSR has been actively divesting some of its assets.

In a bid to stage a recovery, CSR made the decision to demerge its business into two new separately listed companies: one for sugar and renewable energy, and another for its building products, property and aluminium businesses.

Last year, CSR agreed to sell its insulation panels and trading businesses in the Asian region to Rockwool group for $128 million.

CSR stated that the sale will allow it to better focus on the Australia/New Zealand building products market.

The decision followed on from the sale of CSR’s Sucrogen division to Wilmar International.

At the time, CSR said it would consider a range of capital management initiatives to utilise these funds efficiently, which the market took as implying it may consider an acquisition.

A sweet result

In May, CSR reported a 13% on-year increase in FY11 underlying profit to $90.2 million.

Including the one-off gains related to its sale of Sucrogen and its Asian insulation business, CSR’s net profit totalled $503.4 million (compared to a $111.7 million loss in FY10).

CSR saw earnings growth across all of its businesses (ex-insulation), despite the impact of wet weather in eastern Australia.

A final dividend of 5.3 cents was declared. Adding this to a special dividend and a capital return from the Sucrogen proceeds takes the total amount distributed to shareholders for the year to $1.72 a share.

The company returned $800 million to shareholders from sales of Sucrogen and Asian Insulation businesses.

Gloomy outlook

The demerger and divestment helped CSR’s shares to hold up for a while but a bloomy outlook for the sector has since hurt CSR.

The building sector faces tight credit conditions and the prospects of higher interest rates.

CSR feels leading indicators such as finance and housing approvals point to a moderation in housing activity over the coming year.

We feel CSR has a lack of catalysts at the moment to drive value. The outlook across its businesses is dismal and its share price weakness reflects that.

Parts of its business are also being negatively affected by a strong Aussie dollar.

With plenty of macroeconomic issues surrounding CSR and its peers, we feel CSR is likely to be one of the shares to sell in the near term.

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News Corporation (ASX:NWS) is a diversified media giant with interests all over the world and in most facets of media.

It is also considered among the global market’s blue chip stocks.

NWS thus has a wide range of household name services and assets under its belt, including Fox Filmed Entertainment, Twentieth Century Fox Television, Fox Sports, book publisher Harper Collins, the New York Post in the US, web services Photobucket and MySpace, and Dow Jones.

The news giant has made headlines lately following its $12.48 billion bid for pay television operator British Sky Broadcasting Group.

It is also embroiled in a British media scandal following some phone hacking allegations.

NWS continues to suffer from declining earnings and the negative impact of a stronger Aussie dollar.

Scam doldrums

NWS has been experiencing heightened scrutiny amid phone hacking allegations. Pressure on the company has escalated to a political level and some lawmakers are now demanding the deal be blocked.

Allegations of phone hacking and illegal payments at News of the World, one of NWS’s British newspapers, resulted in the paper being shut down.

NWS feels its proposed acquisition will not lead to there being insufficient plurality in news provision in the U.K.

The matter has now been referred to the Competition Commission with immediate effect after the US company withdrew undertakings to satisfy antitrust requirements.

The undertakings included spinning off BSkyB’s 24 hour news channel, Sky News, to alleviate concerns over the extent of its influence in the U.K. media landscape.

A decision could take up to 32 weeks but with the current allegations, the matter might be dragged even longer.

Fresh allegations have also seen another one of NWS’s British newspapers, The Sun, come under fire.

Monetising the net

NWS recently announced it will start charging for access to the online version of The Australian newspaper.

Limited content will be available to the public, with full access costing $2.95 a week.

This follows the model News Corp introduced after it purchased the famed Wall Street Journal in 2007.

News Corporation and fellow media giant Fairfax have introduced high quality online versions of their flagship newspapers in the last decade and if the paid access model works with The Australian, it is expected other key newspaper sites across the stables will start charging for their content.

Earnings not newsworthy

In May, NWS advised that third quarter net profit fell 24% from a year earlier to $639 million.

Net income was $639 million (24 cents a share), down from $839 million (32 cents a share) on year.

The result came on the back of a 6% decrease in revenue to $8.26 billion, which NWS attributed to weakness in its filmed entertainment and publishing divisions.

Weighing on the results was a $125 million charge in its publishing division stemming from a legal settlement and declines in the media company’s movie and newspapers businesses.

However, the cable division was a bright spot, with operating earnings rising 25% on-year amid stronger advertising revenue.

The poor profit result, which missed analyst estimates, saw NWS shares drop 3.4% on the day.

Looking ahead

NWS seems to be in a world of trouble at the moment following the phone hacking scandal.  It is also being considered among the shares to sell, and has recently been a major underperformer in the Australian stock market.

The company is already facing a loss of revenue through the shutting down of its News of the World newspaper.

Current fears are that the scandal will spread to its other newspapers along with a public and political backlash.

In a world where media is already a tough industry, the last thing NWS needs is a bad reputation.

NWS is currently working on introducing charges to online newspaper access. The latest scandal certainly does not help its cause.

With the proposed BSkyB acquisition in limbo, a deepening scandal and declining earnings, we feel NWS will remain under significant pressure.

A strong Aussie dollar will also add to the company’s demise as its US dollar earnings convert to less AUD.

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AJ Lucas Group (AJL) is a leading provider of both specialist infrastructure and energy services.

The group is the leading supplier of drilling services to Australia’s coal and coal seam gas (CSG) industries. It is also Australia’s largest builder of long-distance gas pipelines.

On 30 May, AJL downgraded its full year guidance and flagged asset sales in an attempt to get its debt under control.

AJL said that due to a combination of legal expenses, restructuring costs, and difficult trading conditions, it now expects an FY11 underlying EBITDA of $19 million – $21 million.

Indeed, AJL has been one of the shares to sell over the past 6 months due to these problems.

The latest guidance compares to AJL’s previous forecast of an EBITDA of $32 million – $36 million.

AJL suspended its shares from trading as it assesses various capital restructuring proposals.

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OneSteel (OST) is an Australia manufacturer of steel and finished steel products and is also a leading metal distributor.

OST, which was spun out of BHP in October 2000, markets products used in the construction, manufacturing, housing, mining and agricultural industries.

On 10 May, OST downgraded its full year guidance due to the strong Aussie dollar.

OST said that the dollar’s strength had hurt its steel margins and iron ore revenue.  Indeed, OST has been one of the shares to sell over the past year due to the soaring dollar.

Furthermore, its iron ore operations have been impacted by adverse weather in the second half.

As a result, OST now expects full year earnings to be around $270 million, down from its previous forecast of $232 million.

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Fairfax (FXJ) is a leading Australian media company with a range of prominent newspapers such as The Sydney Morning Herald, The Age, and The Australian Financial Review.

On 3 May, FXJ warned that full year operating earnings are expected to be 6.1% lower than the prior year.

FXJ anticipates FY11 EBITDA to be $600 million, down from FY10’s $639.1 million.

The group said second half revenue was down 4.5% so far amid lower advertising levels, whilst operational costs were tracking higher due to the development of new iPad applications.

A stronger Australian dollar was also weighing on earnings, in addition to the poor cyclical trading conditions.

Fairfax was one of the market’s shares to sell on the day of the update, sinking 8%.

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Lynas Corporation (LYC) is involved in the exploration and development of rare earth minerals.

LYC owns the richest deposit of Rare Earths in the world at Mt Weld (Western Australia), 35km south of Laverton in Western Australia.

Mt Weld is also the world’s largest deposit outside China, with supply due to begin in 3Q11.

LYC was one of the market’s shares to sell yesterday amid environmental concerns over its proposed rare earths plant in Malaysia.

The Malaysian government said that it would hold off on issuing a license to Lynas Corporation until the panel it set up reports its finding in a month’s time.

The plant is crucial for LYC as it looks to develop the rare earths extracted from its Mount Weld mine in WA.

LYC shares slumped almost 10% yesterday, making it one of the worst performers in the Australian share market.

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