10/09/2009 - 00:00

Catalogue of closures sign of tough times

10/09/2009 - 00:00


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DESPITE the resilience of the Western Australian resources sector, underpinned by the imminent boom in LNG development, the past 12 months have been particularly difficult for many companies.

DESPITE the resilience of the Western Australian resources sector, underpinned by the imminent boom in LNG development, the past 12 months have been particularly difficult for many companies.

According to official figures from the state Department of Mines and Petroleum, the number of workers directly employed in WA's resources industry fell 12 per cent to 67,865 between October 2008 and June 2009 as the effects of the global financial crisis spread.

Hardest hit was the nickel sector, which suffered a second consecutive year of falling prices.

After peaking at over $US50,000 per tonne at the height of the nickel boom in mid 2007, nickel prices had slumped to just $US9,000/t by the end of last year.

Astonishingly, market analysts estimated that at those prices, about 70 per cent of world nickel production was in the red.

The end result was, not surprisingly, widespread closures and project deferrals, especially by companies which had invested billions at the top of the cycle to boost their nickel exposure.

The highest profile closure was obviously the shutdown in January of BHP Billiton's $3 billion Ravensthorpe mine near Hopetoun, with the loss of more than 2,000 mine workers and contractors.

Opened with great fanfare just eight months earlier, the project was still only half-way through commissioning and had not achieved anywhere near its planned output of 50,000 tonnes of nickel annually.

Designed to process low-grade, and geologically complex laterite ores, the high tech plant was never able to achieve the recovery rates or production costs needed to turn a profit.

Subsequently, BHP baulked at spending the extra $500 million needed to rectify the operation and placed the mine on care and maintenance.

As revealed in WA Business News in June, BHP is now seeking offers for the project, which could potentially result in the operation being sold by the end of the year. Chinese groups, including Jinchuan Nickel, are considered the most likely parties to be interested.

At the same time, BHP began cutting staff at its Mt Keith nickel mine, and has since announced the closure of its Rockys Reward mine at Leinster.

WA also paid the price for the reckless competition between international miners for local nickel assets in the previous two years.

Ukrainian billionaire Gennadiy Bogolyubov, who paid $1.1 billion for nickel and manganese miner Consolidated Minerals after a long battle in 2007, was forced to shut ConsMin's Kambalda nickel mines and Coobina chromite mine in the Pilbara when financial conditions tightened.

Similarly, in February, Russia's Norilsk Nickel closed the last of its WA nickel mines in the Lake Johnston and Kalgoorlie regions just two years after buying them in its $7.7 billion takeover of LionOre Mining.

And Swiss giant Xstrata pulled the pin on the $90 million Sinclair nickel mine in April, just 10 months after operations began. Sinclair was acquired along with the rich Cosmos mine in Xstrata's $3.1 billion takeover of Jubilee Mines in 2007.

Several other small nickel mines were also chopped this year, including Mincor's Miitel mine at Kambalda and Panoramic's Copernicus mine in the Kimberley, while proposed developments such as Poseidon Nickel's Mt Windarra project and Heron Resources Kalgoorlie Nickel Project were put on the backburner.

However, closures and deferrals were not restricted to the nickel industry.

Rio Tinto, desperate to retire debt and cut spending, deferred almost $1 billion in expansion work at its Pilbara iron ore operations, including its vaunted $370 million switch to driverless trains.

Rio also slowed the pace of work on its $1.5 billion underground diamond mine at Argyle, and closed its $400 million HIsmelt pig iron plant at Kwinana at least until March next year.

International metals giant Alcoa responded to plummeting aluminium prices by formally shelving its controversial $3 billion stage three expansion of the Wagerup alumina refinery that would have made it the biggest in the world.

Meanwhile, Talison Minerals shut down the world's single biggest tantalum mine by closing the Wodgina mine it bought in the Pilbara from the wreckage of Sons of Gwalia just 12 months earlier.

Zinc and copper miners were another group hard hit by the downturn, with Canada's TeckCominco closing its Lennard Shelf mines in the Kimberley, Oz Minerals closing its Scuddles zinc mine in the Murchison region, and CBH Resources mothballing plans to develop its Panorama zinc project in the Pilbara.

However, positive signs have since emerged which promise some respite for the worst affected sectors, largely due to a steady recovery in prices since April as Chinese demand has rebounded.

Critically, nickel prices have almost doubled to around $US18,000/t, improving the likelihood of a sale at Ravensthorpe and of restarts at other closed operations.

Strengthening zinc and copper prices have also revived interest in assets such as Lennard Shelf, which is about to be acquired by Perth junior Meridian Minerals with the backing of China's Northwest Mining.

And recovering diamond demand has enabled UK-based Gem Diamonds avert a full-scale shut down at its Ellendale mine in the Kimberley, where the Pipe 4 satellite pit was closed earlier this year.



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