Miners sidestep Olympic hurdles

Inadequate coal supplies for Chinese power plants means industrial customers are facing power rationing in order to ensure enough electricity for the Olympic Games.

Vancouver-based Silvercorp Metals (SVM-T, SVMFF-O) is feeling the disruption. The company’s operations at its Ying mining camp in Henan province were shut down for some 100 hours in July, roughly 13.4% of the month or 3.2 hours per day.

During the first eight days of August, the company was forced to sit idle 32% of the time, losing about 60 hours or 7.5 hours per day. The company expects this level of rationing to continue until the Olympics are over on Sept. 5.

Silvercorp says power supply issues may continue to affect the company’s operations after the Games due to coal supply issues both nationally and within Luoyang City, where its Ying silver project is located.

“We’ve always experienced challenges with power,” says Lorne Waldman, Silvercorp’s corporate secretary. “The positive thing is we have a good relationship with the power authorities — when there has to be a ration we are warned.”

In China, coal-fired power plants supply some 78% of the country’s electricity. A recent toughening of the safety laws around coal mining in China mean many small-scale mines — of which there are thousands — have been forced to shut down or consolidate, significantly disrupting supply.

Waldman says the Olympics have just made a bad situation worse because the government is re-allocating the grid’s already sparse power to make sure the Games run smoothly. In general, however, Waldman says power is a constant risk factor for the company’s operations.

“On a daily basis we are in contact with the power authorities but they aren’t able to give us a long-term plan,” he says.

In the last year, Silvercorp has grown from having a single mine at Ying to operating four producing silver-lead-zinc mines. The company plans to expand mining capacity from 300,000 tonnes per year to 500,000 tonnes in 2009 and 700,000 tonnes in 2010.

Other Canadian-based companies affected by Chinese efforts to ensuresecurityand decrease air pollution during the Olympics include Arehada Mining (AHD-T), Goldrea Resources (GOR-V, GORAF-O) and Jinshan Gold Mines (JIN-T, JINFF-O).

Arehada is shutting down its zinc mine and plant during the Olympics due to a suspension on the sale and use of explosives and a prohibition on transporting dangerous products like sulphuric acid.

The company’s 50,000-tonne-per- year zinc plant, which produces sulphuric acid in addition to zinc oxide, was closed on Aug. 6. The mine was shut down on Aug. 8 because the company has a limited capacity for storing the sulphuric acid.

Production will resume in September when the restrictions are lifted.

Arehada consultant Mike Lui did not know what kind of loss this would mean for the company. He says more information will be available in the future.

Jinshan Gold president and CEO Jay Chmelauskas says the company had to order enough explosives and cyanide to last one month before and after the Games because of the transportation restrictions.

“You just had to make sure you were covered,” he says.

Although Chmelauskas is staying away from Beijing during the Olympics, some management were heading there in mid-August for meetings. He says they’ve had to deal with a few extra hurdles in getting visas but it wasn’t impossible.

But tightened security meant Goldrea Resources chief operating officer, Paul Blair, was unable to secure a visa and has returned home to the United States.

Although Goldrea president and CEO Larry Reaugh says Blair is one of his “key people,” not having him in China right now is not affecting overall operations.