Lundin Mining posts US$199M Q3 loss on writedowns; Portugal zinc mining stops
Sponsored LinksMining Corp. (TSX:LUN) reported Thursday a US$199-million loss and said it is suspending zinc production at two Portuguese mines in response to plunging base-metal prices.
“Our long view at the moment is that prices of some of our products are so low, particularly in zinc and nickel, that the vast majority of global production has now reached the stage where it’s uneconomic,” Lundin president and CEO Phil Wright told a conference call.
Lundin is shuting the Aljustrel zinc mine and suspending zinc production at the Neves-Corvo copper/zinc operation.
“As disappointed as we are to make this decision, zinc prices have dropped something like 70 per cent since we restarted Aljustrel, and even since our official opening in May of this year the zinc price has fallen by 50 per cent,” Wright said.
“It is just an impossibility for us to continue to operate this mine.”
Wright said the company’s loss, which reversed a year-earlier profit of $76.6 million, was primarily the result of $201.1 million in pre-tax writedowns related to the Aguablanca mine in Spain and goodwill associated with its 2007 acquisition of Rio Narcea and 2006 acquisition of EuroZinc.
The loss amounted to 51 cents per share, compared with earnings of 20 cents per share in the year-earlier period.
Earnings before the impairment charges were $2.1 million, the company said.
Sales in the quarter declined to $191.9 million from $292.8 million.
Wright said he’s generally pleased with Lundin’s operating performance.
“The things that we can control are going well and the things that we can’t control are not,” he said.
“Production is running well, our cost performance is good and certainly the weakening euro is helping to offset some of the decline we’ve seen in metal prices.”
Wright said he expects zinc prices will rebound and Lundin hopes to restart the Aljustrel mine in the future. It will also continue to expand its zinc facilities at Neves in preparation for a price recovery.
“We are not losing any confidence or faith at all,” he said. “Our long view is that when zinc comes back it’s going to come back with a great deal of difficulty on the supply side.”
Metal prices have plunged dramatically amid fears that a global economic downturn will affect demand.
Various mining companies have responded by temporarily shutting down mines, which some analysts believe could lead to a supply crunch and resulting jump in prices as the global economy grinds back into gear.
Lundin will take a charge to earnings related to the mine shutdowns of $8 million in the third quarter and anticipates a further charge of $10 million to $15 million by year-end.
Output during the quarter was in line with or ahead of internal expectations, Lundin said, and “record or near-record production is continuing at all mines.”
Copper production increased eight per cent to 24,433 tonnes compared to the same quarter in 2007 and zinc production grew 23 per cent to 44,605 tonnes.
However zinc, lead and nickel prices were down 45 per cent, 38 per cent and 37 per cent from a year earlier.
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