Editorial: Uncertainty spawns paralysis

The global financial crisis continued to grind forward during the week ended Oct. 18, the 42nd trading week of 2008, leaving in its wake further depressed metals prices, distressed mining share prices and a new string of announcements of mine suspensions, especially in the base metals subsector.

• The most extraordinary financial headlines such as “Iceland hopes for IMF bailout” and “Financial crisis could cost 20 million jobs” and “Fannie, Freddie to buy US$40B a month of troubled assets” are becoming commonplace.

The global business environment is now characterized by extreme levels of uncertainty, resulting in a paralysis in decision-making, especially in the deployment of capital. As a result, the mining industry is starting to pull in its horns in order to weather a downturn many expect to last at least a year.

After years of robust growth, spot prices for the major base metals are, all of a sudden, quite weak: US$2.04 per lb. copper, US$4.68 per lb. nickel. US51 per lb. zinc and US61 per lb. lead. Uranium oxide is selling for just US$46 per lb. and iron ore pricing outside of long-term contracts is showing signs of collapse, particularly in the scrap stainless steel trade. Precious metals prices haven’t been hit quite as hard, but profits for the best miners are drying up.

Right here in Canada, months of declining metals prices are finally starting to translate into pink slips: Blue Note Mining is shuttering its Caribou and Restigouche zinc-lead mines in New Brunswick, after less than a year of commercial production; North American Palladium is halting mining at its Lac des les mine in northwestern Ontario; First Nickel has halted production at its Lockerby nickel mine in Sudbury; and FNX Mining is stopping commercial production from its Levack nickel contact deposits, part of the larger Levack complex in Sudbury, which remains in commercial operation.

There’s plenty of evidence that lending markets are tightening for miners, too: bankers for Central Sun Mining were unable to proceed with a US$22.5-million debt financing that would have allowed the company to complete its Orosi gold mine expansion project in Nicaragua; and North American Tungsten’s Chinese investors effectively backed out of a $20-million financing.

• In the Canadian federal election, the pro-business Conservative Party added to its seat total in the House of Commons but remains a dozen seats shy of a majority.

For miners, the election means that the status quo is maintained, and the Liberal Party’s stunningly bad idea for a sweeping carbon tax is off the table for now after having been given a loud raspberry by the electorate.

Even better, ineffectual Liberal leader Stphane Dion — who fell hook, line and sinker for the global warming con and made the carbon tax his party’s major election plank — was quickly forced to resign by furious party members.

• The International Lead and Zinc Study Group came up with some new global supply and demand figures on Oct. 13 that are jarringly optimistic and don’t seem to grasp the scale of the global economic slowdown.

For lead metal, the ILZSG projects global demand will rise by 5.7% to 8.65 million tonnes in 2008 and by a further 4% to 8.99 million tonnes next year. It anticipates this rise will be driven mainly by further growth in China of 19.1% in 2008 and 9.5% in 2009. Global lead mine output is forecast to rise by 7.5% this year to 3.88 million tonnes and by 2.2% in 2009 to 3.97 million tonnes.

The ILZSG anticipates a small surplus in world refined lead metal of 30,000 tonnes in 2008 and expects an even closer balance between supply and demand in 2009.

For zinc, the ILZSG expects global usage of refined zinc metal to increase by 3.8% to 11.78 million tonnes in 2008 and by 3.3% to 12.18 million tonnes in 2009. The ILZSG expects global zinc mine production to jump by 3.9% to 11.57 million tonnes in 2008 and by 5.2% to 12.2 million tonnes in 2009.

The group anticipates global surpluses of refined zinc metal of 150,000 tonnes in 2008 and 330,000 tonnes in 2009 as growth in supply continues to exceed that in demand.

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