TORONTO (CP) -- FNX Mining Co. Inc. (FNX) said Tuesday it is suspending commercial production at its Levack nickel mine near Sudbury, Ont., because of low prices and high operating costs. As well, North American Palladium Ltd. (PDL) placed its Lac des Iles mine near Thunder Bay, Ont., on care and maintenance, laying off 350 workers. These moves came after First Nickel Inc. (FNI) suspended production at its Lockerby mine near Sudbury due to the "challenging financial environment," cutting about 150 jobs.
The current prices of many metals, notably nickel, are less than the cost of mining them for a large number of producers, said John Ing, CEO of investment dealer Maison Placements.
"Companies can't keep on doing that," Ing said. "They're going to have to shut down their operations, at least temporarily."
According to BMO's monthly commodity watch, base metals have been hit particularly hard by the turmoil in world financial markets.
Nickel prices were down to $8.07 per pound in September after a high of $16.89 in 2007. Zinc was selling at $0.79 per pound, down from $1.47 last year, while copper was at $3.17 per pound, down from an April peak of $3.94.
Aluminum, lead, platinum and palladium are also well below recent highs.
Prices of metals had skyrocketed in recent years on optimism that growing economies like China and India would continue to push up demand.
But North American Palladium president and CEO William Biggar said the fear of a global recession is shrinking demand for commodities, even in the big developing countries.
"Unforeseen developments in the marketplace have compelled us ... to take this defensive but temporary action to preserve the company's strong asset and financial base," Biggar said.
He said palladium would have to rebound to between $300 and $340 an ounce for the Lac des Iles mine to become viable again. Palladium is currently at about $183 on the New York Mercantile Exchange.
Biggar added that the current economic climate is creating acquisition and joint-venture opportunities.
But Ian Nakamoto, director of research at MacDougall, MacDougall and MacTier, said most companies are too focused on surviving to consider attempting takeovers.
"They're all in the mentality of, 'Let's hunker down,'" Nakamoto said.
"The small caps or anyone who needs money — I don't know how they're going to get through it."
He added that "it's going to take some time" for metal prices to rebound. In the meantime, expect to see more mines shut down and some companies go out of business.
"Right now, it certainly appears like survival of the fittest," Nakamoto said. "Fittest being low-cost operations with a strong balance sheet."
