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Xstrata Plans to Boost Mount Isa Zinc Production by 10% in 2010 and 2011

Xstrata Plc, the world’s biggest thermal coal exporter, said zinc and lead output at its Mount Isa operation in Australia will rise more than 10 percent this year and next as production costs decline.

“We’re continuing to improve the processing operations as well as on the mining side,” Brian Hearne, chief operating officer for the Zug, Switzerland based company’s Australian zinc division, said in a phone interview. “It’s going to go up more than 10 percent this year for zinc, and lead about the same. Next year is about the same outlook.”

Zinc and lead are the third-biggest contributors to Xstrata’s operating income, accounting for 13.3 percent in the six months to June 30, according to data compiled by Bloomberg. Zinc, used to help make steel rust-resistant, is the worst performer on the London Metal Exchange this year, falling 12 percent. Market fundamentals are “the weakest of the base metals,” Morgan Stanley said in an Oct. 6 report, which said consumption won’t match production until 2012.

“The outlook for the next 12 months is going to be volatile,” said Hearne, adding that prices would be helped as aging large mines near the end of their productive life.

Xstrata, the world’s fourth-biggest zinc producer according to researcher CRU, rose 2.6 percent to 1,403 pence at the 4:30 p.m. London close yesterday, taking this year’s gain to 25 percent.

Zinc Production

The Mount Isa mine complex in Queensland produced 273,367 metric tons of zinc metal last year as well as 152,301 tons of lead metal, according to its website. The company’s MacArthur River mine, in the Northern Territory, produced 143,462 tons of zinc and 26,929 tons of lead.

China Minmetals Group’s Century zinc mine in Australia, the world’s second largest, with output capacity of 500,000 tons, is scheduled to close in 2015. Xstrata’s own Brunswick zinc mine in Canada will close in 2012, the company said on its web site. Brunswick last year produced 189,594 metric tons of zinc metal.

“Even if you put every possible increase in production of all operations that exist plus the ones that are idle, we still don’t believe that’s going to match the demand,” said Hearne. He expects “some reasonable” price rises for zinc as well as lead to come through in “two to three years.” Zinc and lead often occur in the same ore bodies.

Hearne also said there had been inquiries from India for Xstrata’s bulk concentrate in the past six months.

Annual processing fees for zinc concentrate charged by smelters are likely to go up a small amount next year because of a surplus in concentrate, Hearne said. The so-called benchmark treatment charges rose to $272.50 a ton on a $2,500 a ton zinc basis price for 2010, up from $198.50 a ton with a $1,250 a ton basis price during 2009, according to Xstrata’s half-yearly report.

“I don’t’ think it’ll be much of an increase at all because there’s only a slight surplus of concentrate production to demand,” Hearne said.

To contact the reporter on this story: Elisabeth Behrmann in Sydney at ebehrmann1@bloomberg.net

To contact the editor responsible for this story: Andrew Hobbs at ahobbs4@bloomberg.net

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