UPDATE 1-Doe Run ditches plans for U.S. lead plant

Fri Jun 29, 2012 5:15pm EDT

* Herculaneum is the last primary U.S. lead smelter

* News contributed to lead market's rally on Friday

* Doe Run aims to diversify beyond lead

By Carole Vaporean

NEW YORK, June 29 (Reuters) - Doe Run Co has canceled plans to build a primary lead smelter in Missouri and will push ahead with the closure of its Herculaneum plant, the last primary lead smelter in the United States, by the end of next year, it said on Friday.

The St Louis, Mo. -based company has abandoned plans for a new smelter, which would have replaced Herculaneum when it closes at the end of 2013, because it did not make financial sense.

"Doe Run has decided not to build its proposed, lead electro-winning plant to process its Missouri mineral resources. We concluded that building a plant here would generate an unacceptable financial risk to the company," Jerry Pyatt, vice president and chief operating officer, said in a press release.

Doe Run announced it would mothball Herculaneum last year after a U.S. government order to install cleaner technology. The new smelter would have complied with stricter air standards.

News that U.S. primary lead production will end contributed to higher lead prices on the London Metal Exchange on Friday, traders said. Three-month prices ended at $1,861 per tonne, up almost 4 percent.

Premiums paid in excess of the LME price for physical delivery of the metal were between 6.5 and 8 cents per lb.

Domestic consumers, mainly battery makers, will have to buy their primary lead abroad. Herculaneum produces about 130,000 short tons of lead per year and supplies about 8 percent of United States' annual lead demand.

Teck Resources Ltd in Canada is the only other high-purity primary lead producer in North America.

"From a global standpoint, it will not be that big of a deal, but for the North American consumer it will be a lot more difficult," said Justin Honrath, metals analyst at CPM Group.

"They'll be relying on outside producers which will probably result in a regional shifting of premiums. It will be a tighter market than if Herculaneum was still operating."

Some 60 percent of 2011's global output of 10.64 million tonnes came from secondary sources, with Australia and China accounting for over half of global primary production.

The company will continue to operate its mine, milling and recycling operations at the site.

Concentrates from the mine will be sold into the world market, although the company may decide to arrange tolling agreements, whereby a third party would refine its ore into metal and Doe Run would sell the finished product, Pyatt said.

Doe Run plans to expand exploration in Missouri, where it has been mining for nearly 150 years, as well as other locations in North America, where its new electro-winning technology might be used to extract lead along with other metals.

Doe Run produces zinc, silver, and small amounts of copper as byproducts of its lead production, but aims to diversify into other base metals, silver and cobalt.

"If we can find some other resources whether it's zinc, copper or some of the other metals, then we'd be comfortable with that," said Pyatt.

Doe Run will continue to operate is 160,0000-tonne-per-year Buick secondary smelter in Boss, Missouri, one of the world's largest lead recycling facilities.

Pyatt said the company was also working with a third party to explore options for the Herculaneum site. Located on the Mississippi River, he said a port facility was one possibility.

The lead producer will work with the 278 employees affected by the Herculaneum shutdown, he said.

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