Output cuts and layoffs hit zinc and lead miners

Sat, Nov 8, 2008

By Leia Michele Toovey - Exclusive to Lead Investing News

At current price levels, approximately 50 per cent of the world’s zinc producers are under water. Zinc MZN3, mainly used as an anti corrosive in galvanized steel is currently selling for around $1,120.00 per tonne, less than half the metal’s January value. Lead prices are not fairing any better- they have shed half their price since February.

If the plummeting price of metals was not enough strain on miners, the industry is also being hit by the global equity crisis. Companies in need of cash flow to keep operations running are struggling to secure the financing they need. That is why in my commentary this week I will be devoting my time to the rather unfortunate issue of operation cuts and layoffs in the industry.

Australia’s CBH Resources will cut output, review takeover plans for rival Perilya Ltd, and lay off half of its staff. Amid a rapidly deteriorating global zinc and lead market the company is cutting ore production by 30 per cent in the 12 month period to June 30, 2009. Zinc concentrate output will be reduced to 78,200 tonnes, and lead concentrate production to 38,700 tonnes. On October 2, CBH offered 2.8 of its shares for each Perilya share if Perilya completed the sale of its Mount Oxide copper mine project in Australia, or 4.2 of its shares per Perilya share if it held on to the project. The idea behind the merger proposal was to reduce costs by combining Perilya’s ageing Broken Hill zinc and lead mines in eastern Australia with CBH’s adjacent operations, helping sustain operation through the current downturn. The sale of the project collapsed last week.

China’s Zhuzhou Smelter and Huludao Zinc announced this week that they would slash output, joining a growing list of Chinese metal firms battling weak demand at home and abroad. Nearly all zinc smelters and exploiters in China have cut their output in the past few months with nearly a third of China’s 5 million tonnes of primary zinc production capacity curtailed. Year end metal outputs will fall short of the expected 4.0 million tonnes of production this year. Zhuzhou has reduced production 20-30 per cent at its 400,000 tonnes smelting facilities. Its new 100,000 tonne capacity smelter is undergoing a trial run and producing very little metal. The country’s second largest zinc manufacturer Huludao Zinc Industry Co has cut the output of a smelter with the annual capacity of 200,000 tons by 30%. The output of another smelter with the annual capacity of 130,000 tons has been reduced by 20,000 to 30,000 tons.

Acadian Mining Corp. of Halifax reported a net loss of $158,729 on revenues of $8.6 million for its third quarter. The Company said that its third-quarter performance was an improvement over the second quarter, when it lost $5.7 million on revenues of $3.6 million, but decreasing zinc and lead prices are hurting the company’s bottom line. Acadian reported last month that plummeting base metal prices might force it to shut down the province’s only lead-zinc mine in Gays River, near Shubenacadie. The company said Monday it has reduced its workforce by 27 to meet production cost targets. President Will Felderhof stated about the current market conditions “We believe metal prices are in an oversold situation and that as normal market fundamentals once again prevail, prices will rise quickly. As the global economy stabilizes, and with a focus on cost control, Acadian should be in a position to sell into this rising market when it occurs.”

Zinc and lead are not the only metals taking a big price hit. All the industrial and precious metals are down, and even gold and silver typically flocked to as a safe haven in times of uncertainty are witnessing a steep decent in values. Gold Investing News details that metals downward swing, and to find out more about silver go to Silver Investing News.

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