Lundin halts zinc output at Neves-Corvo mine, mothballs...

Lundin halts zinc output at Neves-Corvo mine, mothballs Aljustrel

By: Liezel Hill
Published on 13th November 2008
TORONTO (miningweekly.com) – Base-metals miner Lundin Mining will suspend zinc production from its Neves-Corvo copper/zinc mine, in Portugal, and put another operation, Aljustrel, on care and maintenance until metal prices recover, the firm said on Thursday.

Zinc prices have fallen sharply, as investors predict a global recession will dampen demand, which is bad news for a market already in a supply surplus.

LME zinc prices fell to $1 140/t on Thursday morning.

“At Neves-Corvo, it does not make economic sense to produce zinc at these prices,” Lundin CEO Phil Wright said during a conference call with analysts and investors.

In fact, he believes that, for the metals that Lundin produces, “perhaps a majority of global production is now uneconomic” at current prices.

In the short term, the company will use the zinc facilities at Neves-Corvo to treat low-grade mixed ores, thereby increasing copper production in the short-term.

The plant is currently being converted to handle these ores, and zinc output will resume at the mine when “ suitable value for zinc concentrates has returned to the market”.

Still, Wright emphasised that the company has not lost confidence in the medium- and long-term prospects for zinc, and so Lundin is continuing with expansions to the zinc processing-facilities at Neves-Corvo.

At Aljustral, which was designed to produce 80 000 t/y of contained metal, Lundin expects that preproduction losses and shutdown costs will amount to $80-million.

The company spent $225-million to build the mine, but had “no choice in light of present metal prices and the grade of mineralisation available”, Wright said.

Lundin also recognised a charge of $8-million in the third quarter in relation to the Aljustrel closure, and expects an additional charge of between $10-million and $15-million by the end of the year.

At its other operations, the group is implementing plans to conserve cash and reduce spending.

It will defer some mine development that will not affect its five-year production plan at Zinkgruvan, in Sweden, and will begin mining less ore from the mine pit at Aguablanca, and process stockpiled ore instead.

The company may also close its Galmoy mine, in Ireland, earlier than planned.

Lundin's cutbacks follow similar moves by firms including Hudbay Minerals, Teck Cominco and Strategic Resource Acquisition, which have stopped or curtailed production in response to weak zinc prices.

(For a list of companies that have announced cutbacks as a result of the financial crisis and commodity-price turbulence click here.)

NET LOSS

Lundin posted a $199-million loss for the third quarter, from a $2,06-million net profit in that same period a year ago, as steep declines in prices for industrial metals weighed on earnings.

Profit was also affected by $228,2-million in noncash charges, after it wrote down the value of the Aguablanca mine, in Spain, and took an impairment on the acquisition last year of Rio Narcea Mining, and Eurozinc the year before.

Third-quarter cashflow from operations slumped to $46,8-million, compared with $155,3-million a year earlier.

However, Wright pointed out that production rose across all the metals that Lundin produces, and the company also achieved an improvement in operating costs.

“The things that we can control are going well, and the things that we can't control are not,” he commented.