Could Lundin Acquire Island Zinc Lead Mine?

by John Williams
(UK)

With collapsed world commodity prices and economic slowdown ahead, could Lundin Mining swoop on the Anglesey Mining plc operations at Parys Mountain?

Almost daily we hear about how the larger world mining companies like McMoran Freeport, Rio Tinto and Alcoa are cutting capital investment, shedding thousands of jobs and slashing their dividend payments to shareholders, so what about the smaller players?

Lundin owns 100 per cent of the Galmoy lead and zinc mine in Galway, Co. Kilkenny, about 70 miles south west of Dublin, Ireland, and this mine adds to its portfolio, with other locations in Sweden and Portugal.

Meanwhile, Anglesey Mining plc has iron ore interests in Labrador, Canada as well as the copper, zinc, lead mine operations on Parys mountain.

Recently, Western Metals Limited, a Perth based resources company which has uranium inerests in Tanzania in its portfolio, pulled out of a potential deal with Anglesey after carrying out its due diligence at the Parys Mountain location.

Was it the likely impact on demand of the credit crunch and severe global economic slowdown that influenced Western Metals in such a big way, given that it refers to its strong cash position in its many presentations?

The Galmoy zinc and lead mine is situated in lower carboniferous rocks, where two forms of limestone rock converge. It is already in production with ore concentrates being transported to Wexford and shipped to smelters in Europe.

Annual production according to the company is about 74,300 tonnes of zinc and around 17,300 tonnes of lead.

An audit and reclassification carried out in 2005 showed 2.85 Mt of proven ore grading at 15.9 per cent Zn, 4.6 per cent Pb, with 31 g/t of silver.

In contrast, Anglesey Mining at Parys, in a 2007 report by the company, estimates full production would be about 350,000 tonnes per annum.

This would yield roughly 20,000 tonnes zinc, 8,000 tonnes copper and 7,000 tonnes lead. Each are estimated to produce about 40 per cent of revenues, but that was before the commodity price collapse.

And while the Lundin Galmoy mine shows proven reserves of 2.85 Mt (2005 audit), Parys mountain is recording a total of 7.76 Mt, but this includes both proven and inferred resources.

If we take only the indicated resource at Parys which covers the White Rock and Engine zones only, then that total resource figure falls to 3.16 Mt.

It seems in some ways that Parys would be a good acquisition for Lundin, in that it could boost its resource base at a location relatively close to its Galmoy facility, and perhaps gain some economies of scale in operations.

Metal prices should recover strongly in the medium term partly because of the recovery in China driven by a $586 billion infrastructure stimulus, but also from the supply side.

Just ask yourselves, when was the last lead or zinc mine opened in the world?

Health and safety restrictions and environmental constraints are making it ever more difficult, and metal prices have to move ever higher for mining companies to reach break-even on development and production.

So if the resource base is sound at Parys, yet Western Metals pulled out of their acquisition of the location, how sure can Anglesey Mining be that another well capitalised, cash rich miner is going to come along soon?

Is Lundin making noises? Might even BHP Billiton surprise everyone and decide to snap up this resource?

We will have to wait and see.

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