cracks opening in zinc prodn sector

IMO there will be further closures or delays in mines. This also applies to Nickel as well.



LONDON, Aug 19 (Reuters) - More cracks are opening in the zinc mine production sector after the metal's dramatic price decline this year.
LME three-month metal was down by 30.0 percent from the start of 2008 as of Monday's valuation at $1,660 per tonne.
Prior to the last week or so the reaction among producers had been limited to one project being put on hold and one mine
closure being accelerated.
AIM Resources announced last month it was placing on care and maintenance its Perkoa zinc mine project in the central African country of Burkina Faso. Teck Cominco and Xstrata announced the early closure of their jointly-owned Lennard Shelf mine in Australia effective this month. It had been due to close in 2010.
But in the last few days three producers have issued health warnings about the impact of low zinc prices on their operations.
Sweden's Lundin Mining conceded that at current prices its Aljustrel mine in Portugal is not viable. Aljustrel has just
resumed mining operations after being in mothballs for fourteen years. The company is currently "reviewing its options".
one possibility is to extract known copper resources at Aljustrel to bolster its financial performance.
Canada's SRA Corp is experiencing similar problems with the Tennessee zinc mine complex it is in the process of reviving in the United States. The mines last produced in 2003.
The Tennessee complex is at the commissioning stage but equipment delays, manpower issues and lower-than-expected productivity have already caused SRA to slash its production forecast for this year to 25 million pounds of metal from original guidance of 100 million pounds.
Moreover, SRA warned that its mining operations "are not profitable on a sustainable basis in the near term based on prevailing zinc and zinc concentrate prices".
The company said in its Q2 2008 results it has a working capital deficiency of around C$4.5 million and needs to raise new finance or re-finance its short-term debt to "remain in operation beyond October 2008."
Similar problems are looming at Blue Note Mining, the Canadian company which is re-opening the Caribou and Restigouche mines in New Brunswick. The mines re-started production last year after being on care and maintenance since 1998.
However, the company said that as of June 30 it had negative working capital of C$13.9 million, an accumulated deficit of $39.0 million and a net loss of $21.4 million for the first six months of this year.
"The Corporation's ability to continue as a going concern is dependent on achieving profitable operations, which is heavily dependent on market prices for zinc, lead and silver, and the US-Canadian dollar exchange rate, or its ability to raise capital on acceptable terms," Blue Note said.
It is "rationalizing its current portfolio of projects and is determining the best alternative to achieve profitable operations".
Meanwhile in Australia, junior producer Zeehan Zinc has stopped mining operations at its Comstock property in Tasmania, where pre-commercial production started late last year. It is now focusing on "exploration and further definition of the company's resource position." The new resource programme is expected to take around six months with a revised production plan postponed until that time.
The cumulative effect of these announcements, most of which have slipped beneath the media radar screen, is to place a question-mark against around 250,000 tonnes per year of potential zinc mine capacity.
Mine
Location
Capacity
Status
Aljustrel
Portugal
80,000tpy
Under Review
Caribou
Canada
45,000tpy
Under Review
Perkoa
Burkina Faso
68,000tpy
Postponed
Tennessee
United States
57,000tpy
Under Review
Zeehan
Australia
5,000tpy
Postponed
Whether this will translate into closures is still uncertain and in the interim mine production has been racing ahead, up 9.2 percent in the first five months of 2008, according to the latest estimate from the International Lead and Zinc Study Group.
New mines, planned at the time of zinc's bull run of 2005 and 2006, are still starting up, although they are not immune to the usual teething difficulties common to any mine commissioning.
Apex Silver, for example, has downgraded 2008 production guidance at its giant San Cristobal mine in Bolivia to 190,000 tonnes of contained zinc from an original 235,000 tonnes.
However, it is also becoming clear that any further deterioration in the zinc price is going to lead to several potential closures, particularly of those mines being brought back from long periods of downtime.
That ultimately will be price-supportive but in the interim expect producers at the higher end of the cost curve to do all they can to avoid being in the first wave of zinc casualties.