SRA shutters Mid-Tennessee

After investing $150 million to revive the Mid-Tennessee zinc mine complex, 50 km east of Nashville, Tenn., Strategic Resource Acquisition (SRA) (SRZ-t) is temporarily shutting down the operation, which officially began production only six months ago.

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 — one of five mines at the Mid-Tennessee complex — in April. Zinc was more than US$1 per lb. back in April, nowhere near the peak it reached in late 2006 at more than US$2 per lb., a few months after SRA was incorporated. At presstime, the price had sunk to around US60 per lb. Cash costs at the end of the second quarter were steep, at US$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. In August, SRA reported that it would only produce 25 million lbs. of zinc in 2008 — a severe drop from the 100 million lbs. it had 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 $1.88 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 at the complex into the mix. But with current zinc prices, the whole complex is uneconomic.

SRA’s share price fell from 4 to 2 on the news. The stock lost 99% of its value between July 2007, when it peaked at around $6.70, and August 2008, when its second-quarter results were released. SRA has 39.1 million shares outstanding a market cap of $782,000 and its 52- week trading range is 2-$5.67.

The Mid-Tennessee 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 open when zinc prices were low.

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.