It won’t be the last move of its kind by an Australian mining company.
Small miner, Fox Resources yesterday announced that it had been forced to wind down underground mining at its Radio Hill operation in Western Australia and defer a key nickel project after a drop in metal prices in recent weeks.
It’s another sign, first evident in the March quarter, but obscured by the surge in oil prices and record price rises for iron ore and coal in recent contracts, that the resources boom is very old and looking to disappear.
Fox said yesterday in a statement to the ASX that it would complete underground mining and milling operations at the Radio Hill nickel and copper mine by the end of this month and defer the start of the Sholl B2 nickel project until 2009 following a fall in the nickel price.
The price of nickel slumped to a two-year low of just over $US20,000 a tonne on the London Metal Exchange on Friday amid a supply surplus for the steelmaking ingredient.
Stainless steelmakers have been substituting other materials or cutting back on the amount of ferro nickel they are using ever since prices for the metal spiked to over $US50,000 a tonne 15 months or more ago.
Fox shares dropped 5c, or 6.25%, to close at 75c.
The company said it would turn its attention to explore for iron ore, nickel and copper in the Pilbara region of Western Australia and work to improve the efficiency of the Radio Hill mine.
Fox said it would: "increase iron ore exploration drilling at the new Mt Oscar Iron Ore Project following recent drilling success. A second drill rig is expected on site in July 2008 and an update on the progress and outlook for Mt Oscar will be announced later in the week.
"Continue base metal exploration at the Bertram Nickel Project, Radio Hill and the De Beers Base Metals Projects. The Company is currently in discussions with China’s largest nickel producer Jinchuan, to boost the Company’s greenfields (no previous exploration) base metals exploration in the region within its 3,000 square kilometres of tenements.
"Upgrade the Radio Hill mill with the installation of a new crushing circuit, which is expected to significantly reduce the operating cost and improve mill efficiency. Jinchuan has offered excellent support including technical assistance and supply of all components required for the crusher upgrade.
"And defer the commencement of the Sholl B2 nickel project to 2009. Sholl B2 was expected to commence production after the completion of the Radio Hill underground operations in the second half of 2008, as announced on 14 January 2008."
The move has been backed by the company’s largest shareholder, Jinchuan Group, which is China’s largest nickel producer. (It was a big shareholder in Allegiance Nickel which was taken over by Zinifex, shortly before it revealed plans to merge with Oxiana.)
"We believe this decision will be in the best interest of shareholders and Jinchuan looks forward to supporting Fox throughout this exciting phase of growth," Jinchuan’s non-executive director on the Fox board, Tian Yulong, said in a statement to the ASX.
Jinchuan holds about 10.92% of Fox.
Sholl B2 was described by Fox in January as a "key deposit" in the company’s developing nickel business and was expected to come into production in the second half of this calendar year.
In a commentary on last week’s commodity market action in metals, Goldman Sachs JBWere said that it was "another turbulent week for base metals – copper briefly traded at fresh highs for the year on Thursday with cash hitting $4.08/lb, but Friday saw demand worries return to the fore and copper dropped 4%.
"At the other end of the spectrum it was all one way traffic for the oversupplied lead market – prices fell 14% on the week – with cash now at 70c/lb it’s hard to believe lead was trading at almost double that price just four months ago!
"With Peruvian strike action petering out, attention is refocusing on the demand side of the equation – in particular China’s resilience to OECD economic weakness.
"Notwithstanding energy related cost-push and potential for further supply disruptions, the next couple of months could be a bumpy ride for base metals as (northern hemisphere) summer shutdowns exacerbate an already uninspiring demand outlook in the major OECD economies.
"We therefore believe that earnings disappointments and downgrades to earnings forecasts are likely during the July/August period.
"Coupled with weaker macro-economic sentiment and the likelihood of seasonal softness in commodities prices, this is likely to lead to further share price volatility through the September quarter."
