Editorial: It’s closin’ time

Mine closings and layoffs. Yes, with metal prices pulling back sharply this past half year, we’ve finally reached that painful inflection point in the commodity cycle where mine suspensions and closings are starting again, as seen in the week ended Aug. 23, the 34th trading week of 2008.

• Despite its status as one of the world’s larger nickel facilities, the Falcondo nickel laterite mine and ferronickel plant in the Dominican Republic had always been Falconbridge’s swing producer, and apparently its new owner, Xstrata, sees it in much the same light.

In a surprising move on Aug. 19, Xstrata suspended operations at Falcondo for at least four months, citing lower nickel prices and “extremely high” oil costs at the oil-powered facility. The move takes out of the market, for now, Falcondo’s annual capacity of 29,000 tonnes of nickel in ferronickel, or about 2% of global output.

Xstrata is trying to lay off less than 10% of its workers in the Dominican and will redeploy them into maintenance and development work. The company will use the down time to look into converting Falcondo’s energy source to coal, and developing the higher-grade Loma Miranda project, 25 km away. (Barrick Gold and Goldcorp shareholders should keep an eye on what Xstrata comes up with, since their nearby proposed Pueblo Viejo gold mine will have equally large power needs.)

Meanwhile, Bloomberg reported that Russia’s Industrial Metallurgical Holding had chopped capacity by as much as 40% by shutting four furnaces at its Reznickel plant and Uhaleynickel facility. Industrial Metallurgical produced 14,144 tonnes nickel last year, or about 5% of Russia’s total.

While nickel prices had fallen since their highs around US$24 per lb. in mid-2007 to their around US$8 per lb. in early August, the twin announcements goosed nickel prices by more than US$1 per lb. within several days.

Without further recovery in nickel prices, speculation is growing that further closings, suspension or development delays will occur, with names being tossed around such as BHP Billiton’s Kamabalda mine and Yabulu refinery in Australia, and various Japanese plants.

• The situation is more dire in the perennially vulnerable world of zinc miners, which, in an oversupplied market, have witnessed smelters jack up treatment charges for concentrate producers and seen spot zinc prices tumble from US$2 per lb. in early 2007 to a three-year low of US72 on Aug. 12 and US79 at presstime. To make matters worse, LME zinc stocks have almost tripled in the past year to above 160,000 tonnes.

Zinc mine closings were kicked off in July, with Teck Cominco and Xstrata shutting down their Lennard Shelf zinc mine, in Western Australia. The mine reopened last year and was only expected to be operating for three or four years anyway.

This was followed up on Aug. 20 with news from New South Wales that Aussie miner Perilya was halving production and cutting more than 400 jobs at its Broken Hill lead-zinc operations owing to low metal prices. Two months ago, a proposal to merge Perilya with struggling neighbour CBH Resources fell apart, and CBH has since laid off a third of its workforce.

Another woozy Australian zinc miner is Zeehan Zinc, which has suspended mining at its Comstock mine and has a rather pitiful plan to sell off equipment in order to fund part of a A$2.6-million exploration drilling program at its Comstock and Oceana properties, both in Tasmania.

On Aug. 21, Canada’s HudBay Minerals announced it would immediately close its Balmat zinc mine and concentrator in upstate New York, laying off 300. Balmat had been reopened in 2005.

In New Brunswick, Blue Note Metals released the sombre news on Aug. 25 that it would reduce its workforce (including employees, contractors and consultants) at its Caribou zinc operations by 75 people to 300, and would chop its planned capital spending for 2008 to $17.8 million from $28.3 million. All this comes despite a very good operating performance this year. The company said capital spending will be re-evaluated when metal prices improve.

In Burkina Faso, Aussie junior Aim Resources has scrapped plans to build West Africa’s first significant zinc mine, again blaming low metal prices and difficulties in getting the idea funded. The mine was set to produce about 45,000 tonnes of zinc in its first year.

Some marginal zinc mines in China are also reported to be closing, despite China emerging as a significant zinc importer, which should provide a base of support for zinc prices going forward.

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