SRA trying to stay solvent

Third quarter results from Strategic Resource Acquisition (SRA) (SRZ-T) couldn’t reverse the company’s dire fortunesin fact they only made them worse.

The Torontobased company has lost over 98% of its share price since July of last year when it was trading in the $6.70 range. In Toronto on Aug. 15 its shares were trading for just 9.5, down 35% for the day on 1.1 million shares traded.

And while the falling zinc price has played its part the metal closed at 74 in London on Aug. 14 down 50% from prices in May of this year operational problems at its Mid-Tennessee zinc mine and mill at Gordonsville, Tennessee are the key culprit.

SRA’s third quarter results highlighted some of those problems.

The company blames poor equipment availability and manpower issues for the delays and lower than expected productivity and mill recovery during what was to be a time of production ramp-up.

Instead the project has not achieved commercial production and the company now says production for 2008 will come in at 750,000 tons or 25 million lbs of zinc. That figure is a ways off from its previous estimates of 1.8 million tons or 100 million lbs of zinc.

Mining and milling costs are expected to come in at US$1.38 per lb of zinc for the year but that number climbs up to US$1.67 per lb after royalties, freight and smelting costs.

SRA says it will need to hit its target of 7,500 tons per day to get total mining cost down to 85 per lb of zinc.

But whether the company will be around long enough to get there remains to be seen. For the third quarter it only averaged 2,706 tons per day, so the 7,500 ton goal remains a ways off.

SRA does have US$12 million in cash but with a working capital deficiency of roughly US$4.5 million it won’t last long.

That means the company will need to raise money and/or refinance its short-term debt so that it can stay afloat past October 2008.

The company says its board of directors is currently investigating a number of strategic alternatives to address this situation.

If it can achieve the 7,500 ton per day mark it will produce 147 million lbs. of zinc in concentrate per year, or 125 million lbs. of payable zinc, for 10 years.

The mine has an indicated resource of 12.5 million tons grading 3.35% zinc and an inferred resource of 6 million tons grading 3.43% zinc, both using a zinc cutoff grade of 2% and a cap of 4.5%.