The following announcement, just released, is an example of the devastating impact the rising AUD is having on resource companies, and further emphasis of why its important to buy mining companies which produces ONLY commodities that are going UP in price, two of which are tin, gold and nickel.
21 May 2003
KAPOK MINE PLACED ON CARE AND MAINTENANCE - $A RISE
The Directors of Western Metals Limited have decided to place the Kapok Zinc-Lead Mine,
part of the Lennard Shelf Operations, onto Care and Maintenance. This decision has been
taken in response to the recent strong rise in the $A and continued low prices of zinc and
lead, and with a view to improving the company's cashflow.
The Kapok mine produced 384,000 tonnes of ore in the 9 months to 31 March 2003. This
equates to 24,400 tonnes of zinc and 20,000 tonnes of lead metal. The Board believes that
this action represents the most responsible management of the Kapok mineral resource.
The costs of the temporary closure are anticipated to be minimal. The majority of the Kapok
staff will be transferred to Pillara where operations will continue according to the existing
operational plans. Minimal redundancies will be necessary, and the Pillara mine will benefit
from the transfer of experienced supervisors and operators from Kapok. Transferred staff
will allow work on the proposed Pillara open pit to be accelerated.
It is Western Metals' intention to restart operations at Kapok when a recovery in $A metal
prices occurs.
In the past 2 years the zinc industry's general response to low metal prices has been to close
some mines but maximise production levels at others to reduce unit costs. Sufficient
production cutbacks have not occurred and predictably, zinc smelters have continued to
maximise production. As a result, zinc stocks have remained high with no immediate signs
of falling. Whilst demand growth and a lack of new mines will ultimately reduce stock levels,
appropriate cutbacks will accelerate metal price appreciation. The Directors of Western
Metals are firmly of the opinion that this decrease in production at Kapok is in the best
interests of the Company and its shareholders.
The recent sudden increase in the $A exchange rate (at a time when the company's hedge
book is minimal) together with sustained low metal prices, is impacting adversely on the
company's financial position and its arrangements with its principal financiers. The company
has recommenced discussions with its principal financiers and other relevant parties with a
view to resolving this impact, and will keep the market informed of developments as they
may arise.
WMT
western metals limited