OZ Minerals May Cut Output at Biggest Zinc Mine as Prices Slump
bloomberg.com
By Jesse Riseborough
Oct. 21 (Bloomberg) -- OZ Minerals Ltd. may cut output at its Century project in Australia, the world's second-biggest zinc mine, after reviewing its profitability as a 25 percent slump in prices this month erodes margins.
``We will look at what do we actually make in terms of cash and return out of'' the mine in Queensland state, Chief Executive Officer Andrew Michelmore said in an interview. ``That's why we continue to review at what stage would we cut back at Century.''
Michelmore, who forecast more global zinc mine closures, is battling a slump in metal prices as the worst global financial crisis since the Great Depression roils financial markets and slows demand for commodities. A 49 percent decline in zinc prices this year has forced mine closures and delayed expansion plans.
``Mine capacity continues to see tighter operating margins and rising cash costs,'' Credit Suisse Group analysts led by Toronto-based analyst Ralph M. Profiti said in a report yesterday. ``Over time, we believe this market will see more supply-side cuts from global producers.''
OZ Minerals, the world's second-biggest zinc mining company, rose 4.7 percent to A$1.115 at 12:57 p.m. Sydney time on the Australian stock exchange. The stock has dropped 57 percent since OZ Minerals was formed on July 1 by Oxiana Ltd.'s takeover of Zinifex Ltd.
The cash cost of operating the Century mine in Queensland state was 61 cents for each pound of zinc produced in the third quarter and total costs were 87 cents, OZ Minerals said today in its quarterly production statement. The average sale price for zinc in the quarter was 80 cents.
Run Numbers
``We have run the numbers up to the end of September,'' Michelmore said on a call with reporters. ``We are now looking at October and looking at the modeling around that. We certainly wouldn't want to be continuing to produce at these sorts of prices for any length of time.''
The price of zinc has slumped 25 percent this month to 57 cents a pound and Credit Suisse yesterday lowered its 2009 forecast for the metal by 25 percent to 75 cents a pound.
``Severe turbulence in the global financial system, coupled with risk aversion in the face of weak economic signals, continues to have a negative effect on zinc consumption,'' the analysts said.
In July, Teck Cominco Ltd. and Xstrata Plc said they would close a joint-venture zinc mine in Australia earlier than planned because of the decline in prices. U.K. mining company Angus & Ross Plc said last month it suspended construction at a zinc project in Greenland because of problems securing finance.
``Current price pressure is expected to lead to further cuts in production,'' Michelmore said on a call with analysts. ``Metal supply is adequate and there appears to be a reasonable amount of zinc metal available.''
Global production outpaced demand by 23,000 tons in the first seven months of the year, compared with a 37,000-ton deficit a year earlier, the Lisbon-based International Lead and Zinc Study Group said.
The Century mine is forecast to produce 522,000 tons of zinc in 2009, according to Credit Suisse.
To contact the reporter on this story: Jesse Riseborough in Melbourne at jriseborough@bloomberg.net
Last Updated: October 20, 2008 22:47 EDT |
