Australia court blocks Xstrata mine expansion

SYDNEY Tue Dec 16, 2008 11:39pm EST

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SYDNEY (Reuters) - Swiss-based miner Xstrata will consider its options after an Australian court upheld an appeal by some of the country's indigenous inhabitants to halt an expansion of its McArthur River zinc mine, the company said on Wednesday .

Aborigines from Australia's Northern Territory had appealed against the local government's approval of Xstrata's plan to divert the McArthur River to allow it to replace a depleted underground mine with an open pit mine.

Indigenous groups and environmentalists have expressed concern that during the rainy season in the Northern Territory, there would be a risk that potentially contaminated seepage from mining and milling will reach the 300-kilometre (185 mile) long McArthur River. Xstrata disputes the claims.

Xstrata has previously warned that failure to let the expansion proceed would spell the end of the operation.

Xstrata has already cut ore production at the mine by 20 percent because of low metals prices, resulting in the loss of 68,000 tonnes of concentrate, containing 31,700 tonnes of zinc metal and 7,200 tonnes of lead.

The zinc price on the London Metal Exchange is down 55 percent this year, while lead is off 60 percent.

Xstrata said its McArthur River Mining subsidiary would consider the judgment over the coming days before making further comment.

The mine opened in 1995 as an underground operation, yielding 320,000 tonnes annually of lead and zinc in bulk concentrate, or ground ore, form. Its output is sold mostly to Europe and Asia, where it is smelted.

The underground veins have been mostly mined out but the site still contains one of the world's largest deposits of zinc and lead. Xstrata has said that by converting to open pit it can operate another 25 years at the same level of production.

(Reporting by James Regan)

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