Survival of the fittest for lead and zinc miners

By Leia Michele Toovey- Exclusive to Zinc investing News

For the first quarter of 2009, the mantra of many lead and zinc miners is “survival”. 

After the price crash of 2008, many miners have gone underwater. This is forcing cutbacks, closures, acquisitions, and even some bankruptcies. There is no question that prices will rebound as commodity cycles are cyclical.  Now, miners are cutting operations and aiming to be cash neutral, hoping that they will be able to wait out the storm.  When the rebound starts, surviving mines will be in a position to capitalize on what many analysts are predicting to be a rebound like we have never before witnessed.

Even though the commodity crash did not affect lead prices until the spring of 20’08, the world market exhibited waning demand as early as January. The market was in an 8,000 metric tonne surplus between January and November 2008, according to the International Lead and Zinc Study Group. That compares with a 72,000-tonne deficit in the same period in 2007.Global production at 7.956 million tonnes was greater than consumption at 7.948 million tons. Australia, Canada, China, India, South Korea and the U.K. all increased their output, helping to lift global output by 7.6 per cent on the year. Global consumption was 6.4 per cent higher compared to 2007. Greater usage in the U.S. and China outweighed declines in Europe, Japan and parts of Southeast Asia. Global production for November totaled 741,100 tonnes, up from 725,100 tonnes in October. Consumption fell to 733,700 tonnes, up from 718,600 tonnes a month earlier. Global lead mine production for the January to November period increased by 7.4 per cent to 10.663 million tonnes, although output has declined in recent months. China turned into a net importer in 2008, importing 3,000 tonnes for the January-November period. It exported 202,000 tonnes in the same period in 2007.

Company news

Hindustan Zinc today said it has lowered prices of zinc, but maintained rates of lead, at previous week’s level. The price revision is effective from today, a company circular said. The base metal producer revises rates of its products mostly twice a week, based on the price movement at the London Metal Exchange.

China’s largest zinc producer Zhuzhou Smelter Group said on Monday its net profit in 2008 dropped by at least 50 per cent compared with the previous year’s result. “Impacted by the financial crisis, the demand for zinc has plunged dramatically at home and abroad and prices have dived,” the company said in a statement. Business was also hurt by a production halt during the icy weather in early 2008 and a power tariff increase since last July. The firm recorded a net profit of 79.5 million Yuan ($11.6 million), or 0.16 Yuan per share, in 2007.

Unionized workers at Ireland’s Tara Zinc mine will vote on a restructuring proposal this week that would keep Europe’s largest zinc mine open and safeguard workers’ jobs and wages. No job cuts or pay cuts are required under the proposal. Instead, the mine will move to a seven-day a week operation to increase productivity. Voting by the union’s 700 members begins Monday and ends Thursday. It is predicted that, due to the absence of pay and wage cuts that the union members will vote in favour of the proposal. After the union members vote has concluded, mine ownership will cast their votes.

Strategic Resources, a Toronto-based mining company focused on zinc projects in Tennessee, has sought bankruptcy protection in the U.S. after running out of cash. A Chapter 11 petition filed today in Nashville, Tennessee, listed assets of as much as $1 million and debt of as much as $100 million. Strategic Resource also is applying for bankruptcy protection in Canada, the company said in a statement.

OZ Minerals (ASX: OZL) has been struggling to cut costs in an effort to obtain refinancing on its US $673 million in debt.  To cut costs, today the Australia based miner announced that it would put its high cost Scuddles mine into care and maintenance. OZ Minerals said its closure would improve operating costs at Golden Grove by $US14.87 million. Chief Executive Officer Andrew Michelmore said the Gossen Hill mine at Golden Grove will remain open but zinc output in 2009 was expected to be cut by 25,000 tonnes to between 55-66,000t, while copper output would increase by 5,000t to between 40-45,000t.

Swiss-based miner Xstrata warned it will be forced to shut its McArthur River lead/zinc project in Australia’s Northern Territory before the end of this month unless it gets the all clear from the Australian government to restart mining at the remote site. Xstrata said on Friday it was currently processing stockpiles but these would be used up by January 29 unless mining was resumed. Mining ceased on December 17 following a decision by the federal court to uphold an earlier finding that the government’s approval of a US $74 million open cut mine development at the site was invalid. Indigenous groups had appealed against the government’s approval of Xstrata’s plan to divert the McArthur River to allow the open pit to replace a depleted underground operation. Approval is now in the Federal Environment Minister’s hands. Xstrata Zinc Chief Operating Officer Brian Hearne said the minister urgently needed to make a decision as the company would otherwise have no option but to close the operation once current stockpiles of lead and zinc were depleted.