Century zinc mine may not close - Citigroup
SYDNEY, Nov 21 (Reuters) - The owners of the loss-making Century zinc mine, the world's second largest, may have no choice but to keep running the operation because shut-down costs would be too high, Citigroup said on Friday.
About half the world's zinc is being produced at a loss and up to a half million tonnes of capacity elsewhere is under threat of closure because of a collapse in world zinc prices.
Century's owner, Oz Minerals (OZL.AX), has not ruled out suspending all or some production at the giant deposit in eastern Australia, but it is considering cutting staff and other costs before making a decision. [ID:nSYD395903]
"We see it as difficult to implement short-term production cuts at Century without driving up costs and doing little to improve the cash burn until the pre-strip tails off from mid-2009," Citigroup said in a report.
It did not give an estimate of shut-down costs.
The mine employs 1,100 staff and contractors and is part of a company-wide review of operations. Oz Minerals produces zinc, copper, gold and nickel in Australia and Southeast Asia.
The firm has already has rescheduled operations at its Golden Grove mine in west Australia to reduce zinc output.
Oz Minerals spokesman Matthew Foran said on Friday the review would be completed soon but gave no timetable.
"We're conducting a review process across the board and it doesn't pay to speculate on what the outcome is going to be, whether we are going to close the mine or not," he said.
Zinc fetches $0.54 a pound on the London Metal Exchange but it costs $0.69 a pound to mine at Century, though Citigroup said a lower fuel bill could cut Century's costs, trimming losses.
In January, the zinc price was closer to $1.20 a pound.
Century yielded 129,241 tonnes of contained zinc and 17,846 tonnes of lead in the last quarter, making it second in size only to the Red Dog mine in Alaska owned by Teck Cominco (TCKb.TO).
Goldman Sachs JB Were forecasts zinc to average only $0.63 a pound next year, citing a supply overhang in world markets.
More than 70 percent of the 11.3 million tonnes of zinc produced worldwide last year was for use in galvanised steel, according to official Australian figures. ($1=A$1.64) (Reporting by James Regan, Editing by Mark Bendeich)
