Mining Stocks

Of Note:

First Nickel Inc. to suspend operations in Sudbury.
FNX Mining Co. Inc. is reviewing its operations.
Xstrata Nickel, is also "actively reviewing" its operations in Sudbury.


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Plunging nickel takes shine off Sudbury boom
Xstrata, FNX Mining reviewing operations after metal's price drops more than 60 per cent this year on falling demand

October 21, 2008

A decision by First Nickel Inc. to suspend operations in Sudbury because of plunging nickel prices is likely the first in a series of mine shutdowns facing Canada's nickel capital.

The price of the metal used to make stainless steel has skidded more than 60 per cent this year on falling demand. Another Sudbury producer, FNX Mining Co. Inc. is also reviewing its operations there in light of the sharp and severe price decline.

"At these prices for nickel, it's pretty hard for any company to sustain margins. We're no exception to that," said David Constable, a vice-president at FNX.

The company's Levack mine, which is expected to produce about 425,000 tonnes of ore this year, would likely be the first on the chopping block because of its relatively high costs.

"If they are not making money we will suspend them or perhaps ultimately shut them down," Mr. Constable said.

If shutdowns do occur, Mr. Constable said FNX does not expect to lay off employees, because they could be reassigned to other development and exploration projects.

The possibility of Sudbury mine closings marks a swift reversal of fortune for the city of 156,000 people, which, until recently, had been enjoying the benefits of an unprecedented commodities boom.

When the price of nickel peaked at more than $22 (U.S.) a pound in 2007, many Sudbury miners were enjoying annual incomes well above six figures because of bonuses tied to the nickel price. Sales of pickup trucks and recreational vehicles as well as housing prices soared amid the nickel revival.

But suddenly the city's prospects seem far less certain. Nickel closed at $4.78 a pound on the London Metal Exchange yesterday as demand from stainless steel makers has plunged amid fears of a global economic slowdown.

About 6,000 people work in the Sudbury nickel mines controlled by Brazil's Companhia Vale do Rio Doce, Swiss-based Xstrata PLC and Toronto's FNX. By some estimates, there are another 16,500 jobs directly related to the mining industry in the area.

First Nickel's decision to suspend mining at its Lockerby mine in Sudbury was announced on the weekend and will put about 140 people out of work.

The mine, a former Falconbridge property, began production in January, 2006. Although its costs were high at more than $6 a pound, Lockerby was economically feasible until the recent price crash. First Nickel had planned to use the cash flow generated by the production of about four million pounds of nickel per year to help fund a mine expansion.

"In the last four or five weeks nickel really started to slide and there was no point. At some point you've got to make a proper business decision," William Anderson, First Nickel's president and chief executive officer, said in an interview.

The company will retain about 19 staff to maintain the mine while it is shut down and the company waits for a rebound in the nickel price.

Xstrata Nickel, whose parent Xstrata PLC snapped up Canada's Falconbridge and its extensive Sudbury operations in 2006 for more than $18-billion, is also "actively reviewing" its operations in Sudbury, according to spokesman Peter Fuchs.

Xstrata suspended mining at a former Falconbridge nickel operation in the Dominican Republic in August because of plunging metal prices.

Some industry observers have suggested that Xstrata could suspend operations at its flagship Craig mine in Sudbury.

Mr. Fuchs, however, said in an e-mail that potential shutdowns in Sudbury are merely "speculation," at this time.

Officials from Vale Inco did not return calls.


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