After investing $150 million to revive the Mid-Tennessee zinc mine complex, 50 km east of Nashville, Strategic Resource Acquisition (SRA) (SRZ-T) is temporarily shutting down the operation after only six months of production.
In August, the company said it wouldn’t be able to continue operations past October if it couldn’t raise more money or refinance its short-term debt; neither was possible.
The price of zinc has been sinking since mining started at the Gordonsville mine last April, today dipping just below US60 a lb. Zinc was more than $1 per lb. back in April but nowhere near the peak it reached in late 2006 at more than $2 per lb., a few months after SRA was incorporated. Cash costs at the end of the second quarter were comparably steep at $1.67 per lb. zinc.
Making matters worse, the production ramp-up, managed by contract miner, Dynatec Mining, a subsidiary of FNX Mining (FNX-T, FNXMF-O) didn’t go as smoothly as predicted either. In August, SRA reported that it would only be able to produce 25 million lbs. of zinc in 2008; a severe drop from the original 100 million lbs. it initially planed.
The company has had problems meeting its debt obligations. At the beginning of October, SRA said it had not made its second quarter sinking fund payment of $1.875 million to a trustee holding Series I Notes. SRA is now in discussions with its major debt holders to restructure any senior secured debt, which it hopes to have resolved within the 60-day cure period included in the original agreement.
The company says it was just a few months away from bringing its Elmwood and Cumberland mines into the mix. But with current zinc prices, the whole complex is uneconomical.
SRA’s share price fell from 4 to 2 between Oct. 8 and 9, and was unchanged today. The stock lost 99% of its value between July 2007 when it peaked around $6.70 and August 2008 when its second quarter results were released. SRA has 39.1 million shares outstanding and a market capitalization of $782,000.
The Mid-Tennessee zinc complex operated continuously for 28 years until 2003 when zinc slumped below US40 per lb.
Before that, agricultural lime, gravel, germanium and even a few calcite and fluorite crystals helped keep the mine going over years of low zinc prices.
Some staff will be kept on to meet care and maintenance requirements and capital will be used for maintenance such as the dewatering of the underground areas.
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