Companies: AIT   

Tony O'Reilly's battle-scarred Irish zinc miner Arcon International Resources is expected to produce another cheering set of drilling results from its Galmoy zinc on Monday, which bulls believe could suggest a doubling of the average grade of part of the ore body to nearly 30 per cent, writes Robert Tyerman.

Kevin Ross, Arcon's chief executive, has been stepping up the drilling programme at Galmoy, to increase reserves, extend the mine life (hopefully from four to eight years) and cut unit costs. Observers believe the latest drilling results show him on track to achieve his target of reducing costs to $7.25 a lb., from more than $8 now, against a depressed current market price of $7.5 a lb., and increasing output of zinc concentrate from 25,000 tonnes a quarter to $34,000 tonnes.

If these goals are met and sustained, Arcon, which lost €16 million (£10 million) last year and €5.5 million (£3.45 million) in the first half of this year, should be well on the way to the black. Analysts argue that would allow the company to increase Galmoy's reserves from three million tonnes at 11 per cent zinc to two million tonnes at 25 per cent, a significantly more commercial proposition.

Arcon's shares have rallied this year from a 0.75p low to 2.5p — against a 2001 peak of around 12.5p — following a major debt restructuring. This involved a €28.75 million rights issue, underwritten by Sir Anthony O'Reilly (father of company chairman Tony O'Reilly Jnr), whose personal stake was thereby increased to 72 per cent.

Advisers suggest the company is in a position to fund its present exploration programme and point to studies suggesting the zinc price might be poised for a significant recovery. Next year international demand is expected to exceed 10 million tonnes, with mine production reaching only 9.8 million tonnes, while the long-term rise in world stocks is seen as tailing off.