Kagara Australia Zinc Find To Yield 300,000 a Year

Australian miner Kagara Ltd's Admiral Bay deposit could yield 300,000 tons (t) of zinc and 250,000t of lead a year once it is fully developed, the company said on Friday.

Kagara said it was evaluating funding options to help develop the mine, which could also yield 4.5 million ounces of silver annually, making it one of the world's biggest producers.

Kagara's stock rose 8% at A$3.12 against a 0.8% rise in the S&P/ASX200 index.

The production estimates are based on a initial inferred resource of 72 million t of ore, containing 3.1% zinc, 2.9% lead and 18g of silver per ton, Kagara said.

Kagara Chairman Kim Robinson had told Reuters in April one option was to solely fund development of the mine, located in western Australia, possibly by selling a nickel prospect for up to A$1.5bn ($1.3bn).

Admiral Bay, located about 2,000 kilometres (1,200 miles) north of Perth, was discovered in 1981 by accident during exploration for oil in the region.

Kagara acquired the deposit from Rio Tinto Ltd/Plc in 2004, starting exploration work after that.

The news of the discovery comes as zinc prices tumble because of a supply glut. Zinc has fallen to about $1,800 a ton from $4,600 in late 2006 and commodities analysts are forecasting it will be the middle of the next decade before the oversupply eases.

Kagara's deposit, however, is unlikely to be fully developed much before that time, given the need for more exploration and construction work.

Also by then, the big Century zinc mine in eastern Australia owned by Oz Minerals Ltd is scheduled to dry up, removing hundreds of thousands of tons of zinc and lead from the global supply pool.

In the shorter term, Oz Minerals and other Australian zinc miners have signalled a tough second half ahead as falling prices raise questions over the rationale for keeping mines open.

Several zinc mines have already curtailed activities and if metals prices continue to fall the pace could accelerate, according to analysts.

Perilya Ltd on Thursday cut production by half to 55,000 tons a year to preserve ore at its eastern Australian mine until the market turns.

CBH Resources Ltd has laid off more than a third of its work force at its nearby Endeavor Mine, while closer to Admiral Bay, Canada's Teck Cominco Ltd is closing its Lennard Shelf mine, which last year produced 42,100 tons of zinc. ($1=A$1.14)

by James Regan.