Xstrata Zinc Project Cuts New Equipment Shortage with Overhauled Plant – Saves Time and Money

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Researched by Industrial Info Resources (Sugar Land, Texas). The mining major Xstrata (LSE:XTA) (Zug, Switzerland) has done its best to be newsmaker of the month in August, and still has some potential left before the end of the month. First, it stepped into the Phelps-Inco-Falconbrige merger scenario and, with timing and persistence, prevailed in the bidding for Falconbridge (TSX:FAL) (Toronto, Canada). Then, as a member of the top five global miners’ club, it deemed it necessary to deny that it was part of a scheme, along with its peers, to acquire Anglo American. Meanwhile, it was announcing plans to enlarge a number of global mining operations including the expansion of the Mount Isa zinc concentrator in Queensland, Australia. Mount Isa was acquired from Noranda in 2004.

The push for expansion of mining and processing facilities is a common feature in an industry looking at a continued upward price movement for raw materials and commodities. Get it out of the ground in higher volumes, create the capacity to cope with the value adding processing of the ore, and nail those supply contracts, with price escalation clauses in place, as soon as possible.

Xstrata, along with other mining and industrial owners are experiencing a shortage of new construction site equipment and the skilled manpower to operate that equipment. Facing these problems and an accompanying rise in project costs, Xstrata Zinc decided to go ahead with its $144 million Mount Isa plans by sourcing second hand equipment to keep up with the schedule, the project, and the market where shortages are keeping the price up.

The equipment is being sourced from XZ’s George Fisher mine and from abroad for the first phase of expansion at a cost of less than $5 million. Waiting up to two years for new equipment to start the project could have increased costs by a factor of fourteen. The complete project covers the installation of a new semi-autogenous grinding mill, ball mills, and a flotation circuit that will enable the company to replace the existing heavy-medium plant and the obsolete rod and ball grinding circuit. With the overhauled equipment installed and in operation by the end of September for the first phase of the project, the ore production from George Fisher and Black Star mines will increase above 2005 levels by about 40% to 5.5 million tons in 2006.

In the second phase, with current identified reserves at the mines up to 81 million tons from 48 million tons in 2004, production should see 8 millions tons of zinc bearing ore in 2008. A drilling program continues at both mines to extend reserves and a future expansion of the project. The 800,000 tons of zinc concentrate estimated to be produced in 2008 will feed around 66% of Xstrata’s global zinc smelter requirements and the Mount Isa mines and plant will be the world’s third largest zinc mine. If the company had not cut to the chase by utilizing second hand equipment, the expansion race would only have really started moving in 2008. Xstrata’s San Juan de Nieva zinc smelter is the largest in the world with a capacity of 492,000 tons of zinc production per annum.

Xstrata in Australia may well be thinking of using its Mount Isa experience with equipment as it eyes the potential of the Australian Mining Investments’ (Chatswood, Australia) Rockland copper resource, which is 45 kilometers away from the company’s Ernest Henry copper and gold mine in Queensland. The Rockland copper body has been hailed as one of the biggest copper ore discoveries for the past two decades and could be worth $17 billion. Mount Isa and Rockland share the same geological structure. AUM estimates the initial resource of the Las Minerale zone of Rockland at 59 million tons of inferred mineral resource averaging 2.04% copper equivalent and estimates are expected to increase with further drilling results. AUM is targeting a resource of more than 100 million tons at 2% plus copper with significant gold and cobalt by products. This looks bite-sized and bankable for Xstrata in its current expansion mood.

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