Oz Minerals Weighs Closure of Big Century Zinc Mine

Full or partial closure of the Century zinc mine in Australia, the world's second largest, is being considered as zinc prices continue to fall, Oz Minerals Ltd managing director Andrew Michelmore said on Tuesday.

"It's not just all or nothing, this is one of the things we also will be looking at, do we slow this down," Michelmore told Reuters after the company released its latest production figures.

"Zinc in the ground is worth a lot more in the future than it is now," Michelmore said. "So we need to ask ourselves, what's our cost of leaving it there."

There was no timetable set out for taking a decision on Century's future, "though there is no way we would want to keep producing if we are making cash losses there," Michelmore said.

Michelmore said before a curtailment or an outright closure of the mine could occur he would also need to weigh such a move against staff redundancy and other one-off costs.

A "wide-ranging" study was underway to gauge whether the mine can still turn a profit, Michelmore said.

Oz Minerals was formed via the merger of two mid-sized mining houses, Zinifex and Oxiana, this year to diversify each company's commodity base with an eye to better weather cyclical downturns in individual commodity markets.

Costs at the Century mine were running at around $0.69 a pound versus selling prices of around A$0.56 a pound on the London Metal Exchange, Michelmore said.

Deutsche Bank this week warned zinc will average only around $0.53 a pound in 2009.

"The zinc story really is about demand more than supply," said Australia and New Zealand bank senior commodities researcher Mark Pervan. "Certainly cuts from a big mine like Century will help the market, but it is not the cure all.

Zinc is mostly used as an anti-corrosive in galvanised steel.

Stripping work was boosting production costs by around $0.08 per pound at the mine, which yielded 129,241 tons of contained zinc along with 17,846 tons of contained lead in the last quarter, Michelmore said.

Stripping increases costs because it requires first removing a layer of earth before extracting mineral-bearing ores.

A decision has already been made to reduce output from another Oz Minerals' mine, Golden Grove, by as much as 40% next year to between 80,000-85,000 tons.

Cost-cutting has taken on new urgency among miners attempting to combat the effects of weak metals prices and uncertainties exacerbated by the global financial crisis.

At the world's largest zinc mine, the Red Dog lode in Alaska, owner Teck Cominco has studied replacing some diesel operations with wind power to cut fuel consumption.

Michelmore said around a half-million tons of zinc production was already being eliminated globally to address oversupply, which could eventually push up prices.

"As we see it, zinc is really tight going forward to 2010 and 2011," he said. "There is no real new production coming on stream and the market is still growing at around 2% per annum."

Stockpiles of unsold zinc in the market were "relatively low" despite weak prices, suggesting any upturn could occur rapidly, Michelmore said.

"It's just over a week's supply in the market, which is not very much," he said.

A weaker Australia currency against the US dollar had helped cushion the impact of lower metals prices by reducing US dollar costs by 12% during the last quarter, he said.

But the benefits of a weaker currency had to be weighed against declines in metals prices, he said.

By James Regan, Reuters.