Curragh facing uncertain future

Lead-zinc producer Curragh (TSE) may be near bankruptcy.

The Toronto-based company, under protection from creditors and with no cash, will find out its fate Sept. 20 when unsecured creditors render their verdict on the company’s future.

An Ontario Court judge recently placed into receivership Curragh’s Stronsay property in British Columbia and the Sa Dena Hes mine in the Yukon after the company failed to find investors to help with its restructuring. (Creditors are owed more than $221 million; Curragh has been protected since April 5 under the Companies’ Creditors Arrangement Act.)

The Bank of Nova Scotia, the company’s only secured creditor, is in the process of appointing a receiver to manage the Stronsay and Sa Dena Hes projects.

The fate of Curragh’s Faro mine in the Yukon rests on the Sept. 20 decision. Some of Curragh’s financial woes stem from the May, 1992, explosion that killed 26 miners at the company’s Westray mine in Nova Scotia. Curragh was counting on the Westray operation to generate regular cash flow. None of the mines is currently operating.

With low lead and zinc prices, Curragh wasn’t able to rely on its concentrate production to help it out. At one time, the company was among the world’s leading producers of lead and zinc concentrates.

Curragh Chairman Clifford Frame has been in Europe talking to prospective investors, in order to keep his company alive. He was unsuccessful in his dealings with two Korean companies, Korea Zinc and Samsung, which were negotiating to acquire a half interest in Curragh for $50 million. Meanwhile, international price and production problems which helped push the two Curragh properties into receivership will continue to plague the industry for months to come, analysts say.

“It will be a slow, difficult period for another year or year-and-a-half,” Carlos Leitao, an economist with the Royal Bank in Montreal, told Canadian Press.

Lead, often found in the same deposits as zinc and with major application in batteries, has taken a beating because it has been associated with potential health problems.

Zinc, which is used to prevent rusting, has also been in the doldrums, mainly because of the ongoing recession in Western Europe and Japan, says Leitao. It could take until 1995 before prices return to the levels they reached last year, he said.

Prices for zinc in London have been trading in the US40 cents-per-lb. range, down from US48.5 cents at the beginning of the year. Last year, zinc averaged US56.3 cents.

In response, some companies have cut back on production, hoping to reduce some of the inventory which has been stockpiled over the past couple of years. John Lydall, an analyst with First Marathon Securities, said many smelters are still going at full steam, following the philosophy that maximum production means minimum costs. Consequently, the concentrate producers are hurting.

“If the metal price goes down, it hits the concentrate producer as well as the smelter,” Lydall said.

“And because the smelters tend to dictate terms, if there are too many people producing concentrate, it’s the concentrate producers that get hit hard first.”

Owners of smelters are hoping demand will pick up; otherwise, they face the dismal prospect of shutting down themselves, he said.

“They will continue to hope somebody else closes down rather than them,” he said. “Everybody hopes the other guy is going to close down. ”