Outokumpu to Quit Mining as Metal Prices Decline
Helsinki, Nov. 1 (Bloomberg) -- Outokumpu Oyj, a Finnish
maker of stainless steel and copper, said it will quit mining to
cut costs and focus on fabricating metals after a drop in prices
led to a third-quarter loss.
The company will cease production at the Tara mine in
Ireland, Europe's largest zinc mine, and will seek buyers for the
Pyhasalmi zinc, copper and pyrite mine in Finland and the Black
Swan nickel mine in Australia. The latter two mines will be kept
open during the process because they break even or are profitable.
Mining companies are cutting production of copper, nickel and
other metals as prices and demand drop from users such as
electronics and steel makers. The average price of copper in
London was down 21 percent in the third quarter from a year
earlier, while zinc, used for rustproofing steel, is at its lowest
level in at least seven years.
``The mining companies are using these lower prices as an
excuse to close down operations that are marginal and which make a
loss,'' said John Meyer, an analyst at SG Securities in London.
Mining accounts for 4 percent of Outokumpu's sales and
employs 1,200 workers in seven countries. The company said it will
try to find work for mining employees elsewhere in the company.
Outokumpu stock fell as much as 21 cents, or 2.3 percent, to
8.8 euros. They have risen 10 percent this year.
Phelps Dodge Corp., the second-largest copper miner, said
last week it will cut output by 16 percent next year. That should
result in balancing copper production with demand next year, Meyer
said, while the Tara mine closure will reduce world zinc supply by
about 200,000 metric tons, or more than half of the surplus
expected for next year, he said.
Metal Prices Jump
Zinc for delivery in three months rose in London as much as
$22, or 2.9 percent, to $792 a metric ton, its highest for three
weeks. Nickel, which has dropped 33 percent this year, climbed as
much as $195, or 4.4 percent, its biggest gain for three weeks, to
$4,650 a ton.
Outokumpu, which makes about 55 percent of its revenue from
stainless steel, has already said it may close the Hitura nickel
mine in Finland and the Nikkel og Olivin nickel mine in Norway.
The company lost 6 million euros ($5.4 million), or 4 cents a
share, in the third quarter, compared with net income of 50
million euros, or 26 cents a share, in the year-earlier period.
A ``depressed market'' for stainless steel and copper and the
drop in zinc and nickel prices hurt the third-quarter result, the
company said. Still, the company said it expects to return to
profit in the fourth quarter.
It may sell its Pyhasalmi, Black Swan and Tara mines outright
or form joint ventures with mining companies, the company said. It
hired RBC Capital Markets of Canada to advise on the disposals.
The company's effort to sell the mines represents a
``reallocation of funding,'' said Risto Virrankoski, deputy chief
executive, in an interview. ``We are reallocating capital from
upstream to downstream operations.''
Outokumpu's products include steel and copper tubes, strips
and fittings.
Exploration and development work outside the mines will also
be halted, and the company will seek buyers for those operations
or close them down.
The capital tied up in the three mines and their associated
exploration operations totals about 350 million euros, Virrankoski
said.
Costs
Closing its Hitura and Tara mines will cost 13 million euros
in the fourth quarter.
Zinc prices need to be at least $1,000 a ton for Tara to be
profitable, Virrankoski said. Outokumpu has received expressions
of interest from other miners for the Irish property, which is
losing about 3 million euros a month with zinc at current prices,
he said.
Outokumpu's pretax loss before extraordinary items was 8
million euros, compared with profit of 60 million euros in the
year-earlier period. Analysts were looking for a pretax loss of 14
million euros, according to the newspaper Kauppalehti and SME.
Sales rose 43 percent to 1.18 billion euros.
In January, Outokumpu spun off its stainless steel unit and
merged it with Sweden's Avesta Sheffield AB to form AvestaPolarit
Oyj. Outokumpu has a 55 percent stake in the new company.
--Jon Hurdle in the London newsroom (44) 207 673 2095 or
jhurdle1@bloomberg.net, with reporting by Juho Erkheikki and Jonas
Dromberg in Helsinki/lea/tc
This is a biggie |
