Credit crisis shuts SRA's Tennessee zinc mines
Wed Oct 15, 2008 4:07pm EDT
reuters.com
By Carole Vaporean
NEW YORK, Oct 15 (Reuters) - Strategic Resource Acquisition Corp (SRZ.TO: Quote, Profile, Research, Stock Buzz) said the credit crisis and falling zinc prices forced the company to reduce its Gordonsville zinc mine operations to temporary care and maintenance and to stop construction on its Cumberland and Elmwood mines, all in Tennessee.
"It's a difficult time. We did everything in our power to avoid the scenario of care and maintenance, but when the credit markets dried up we couldn't get the funding," SRA's investor relations vice president Donna Yoshimatsu told Reuters.
Even with $29 million in new or newly refurbished equipment as collateral, she said SRA could not raise the money needed to continue production at Gordonsville.
Toronto-based SRA owns all three mines at its Mid-Tennessee Zinc Mining complex (MTZ), once owned and completely closed down by now-defunct Pasminco of Australia.
"It's a terrible thing to have to shutter the mine, but we have to conserve our costs. We hope that when markets return, and that means zinc would have to be about 85 or 90 cents (a lb) and we would need more supportive credit markets, we would be in the position to restart the mines," said Yoshimatsu.
London Metal Exchange zinc has fallen from a record peak at $4,600 a tonne in December 2006 to Wednesday's low of $1,310 a tonne, about 59 cents a lb, last seen in August 2005.
On Oct. 9, SRA cut its staff from over 300 employees at the end of August to about 30 and put the Gordonsville mine on care and maintenance so that it can keep the mines dewatered and in good condition while it tries to restructure its debt.
"We're trying to recapitalize so that when (zinc) prices return, we can flip on a switch and restart operations, which is our intention," said Yoshimatsu.
Late Tuesday, SRA said, it met a debt payment that was due Sept. 30 to maintain good standing with its debt issuer, and to give it time to talk with stakeholders and restructure debt.
SRA started the Gordonsville mine in April and reached a rate of over 3,000 tonnes of zinc concentrate per day. While it had order agreements for all of its concentrates, operating costs were still about twice the current zinc price.
MTZ produces some of the highest quality zinc concentrate available and is situated about 100 miles from the smelter, now owned by Belgium's Nyrstar (NYR.BR: Quote, Profile, Research, Stock Buzz), which was custom built to process the Tennessee ores.
SRA was three or four months away from restarting the Cumberland and Elmwood mines, which would have cut operating costs to about 85 cents a lb, especially given their high grade ores.
Yoshimatsu explained that many zinc miners have other metal by-products to support operations during tough times. While MTZ has substantial germanium and gallium deposits, their capture is contingent on SRA ramping up to higher production levels.
"The germanium and gallium will be extremely valuable, but your mines have to produce above 5,000 to 7,000 tonnes per day to have enough leachate to batch process it," she said.
With all three mines operating at 7,000 tonnes a day, MTZ could become more cost effective. Selling just the germanium and gallium leachate would lower costs by another 10 cents a lb, to 70 or 75 cents a lb.
SRA's plan calls for building a small plant to process the germanium and gallium at the mine site, cutting costs by another 10 or 15 cents a lb.
"In a low zinc environment, if you had the germanium and gallium going you'd certainly be able to offset your costs," said Yoshimatsu. (Reporting by Carole Vaporean; editing by Jim Marshall) |
