Xstrata: No guarantees on Australia zinc project Anglo-Swiss...

Xstrata: No guarantees on Australia zinc project

Anglo-Swiss miner Xstrata PLC said Tuesday a revised plan to extend the life of its McArthur River zinc mine in Australia's Northern Territory has "some chance" of approval and continues to face resistance from some traditional landowners.

McArthur River's general manager Brian Hearne told reporters via a teleconference from Darwin the company had completed a more detailed environmental impact assessment for its plan to divert the river and switch to open cut from underground operations after an initial proposal was rejected.

Responding to the Northern Territory's request for further information early this year, Xstrata was forced to undertake a full public environmental report into the project, which began a 28-day public review Tuesday.

The process is a wild card for an already chronically tight global zinc market given Xstrata's ultimatum to shut the mine if the application is rejected, thereby stripping up to 3% of global supply from 2008.

Hearne said additional measures to minimize and monitor the project's environmental impact, together with the inclusion of social programs, answer the concerns expressed by the government's independent assessor.

"So with that on board we stand some chance of this project being approved," he said.

"I'm not a gambling person...as far as I'm concerned we've covered all avenues but that's still got to be assessed by the government's people."

While people living around the mine site support the project, additional economic and social benefits have failed to appease all local aboriginal groups, Hearne said.

"There are some people that have got doubts about our ability to move the river and divert it around the ore-body...we haven't been able to convince all (traditional owners) that this is the way we should go."

Green groups such as Environment Centre Northern Territory say any plan that includes diverting the river is unsustainable, however the government appears willing to accept some kind of river diversion is inevitable.

The additional environmental studies, some associated design changes and rising fuel and equipment costs mean the project's price tag has risen to A$82 million from the A$66 million estimated two years ago, he said.

In the current high metal price environment, the additional costs aren't expected to threaten the project's viability, Hearne added.

Following the 28-day public consultation period, the revised proposal moves to the Environmental Protection Agency, then to the Northern Territory's environment ministry and on to the mining ministry for a final decision.

McArthur River is currently operating a test open pit at a total mining rate of 1.8 million tons a year, up from 1.6 million tons previously, and requires approval for full open cut operations by mid August to avoid having to seek permission for a second test pit.

At 0236 GMT, zinc was trading at US$3,205 a ton on the London Metal Exchange after doubling to an all-time high of US$4,000 in the year to mid May as investors honed in on shrinking warehouse stocks now below 220,000 tons.

In a report earlier this year, Macquarie Research said McArthur River's closure would extend the anticipated global zinc shortage to the end of the decade.

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