Norilsk Shuts Down Its Australian Mines

Norilsk Nickel is suspending production at its last two active mines in Australia, the final victims of an economic crisis that has brought the Russian miner's entire Australian network to a halt.

Norilsk, the world's largest nickel miner, will suspend the Black Swan and Lake Johnston nickel operations with immediate effect in a move that will result in 330 job losses by March, the company said Monday.

"Market and other conditions have left the Australian business unsustainable given current metal prices," Norilsk said. It did not say when the mines might be reopened.

Nickel has lost more than 60 percent of its value in the last 12 months. The metal, which gives stainless steel its strength and sheen, is worth only a fifth of a record price of $51,800 a ton reached in May 2007.

Black Swan and Lake Johnston together produced about 25,000 tons of nickel in concentrate last year. Alfa Bank said the latest cuts, combined with earlier mine closures in Australia, were equivalent to 13 percent of Norilsk's 2008 nickel output.

"By the nature of the fact you are the biggest player, you have to absorb most of the cutbacks in supply if you want to get the market back to equilibrium," said Barry Ehrlich, senior analyst at Alfa Bank.

Norilsk produced 299,721 tons of saleable nickel last year, up from 276,000 tons in 2007, and has forecast output of between 290,000 tons and 305,000 tons of the metal this year.

Nomura Research revised down its nickel production forecast for Norilsk to 285,000 tons, but revised its 2009 net profit forecast up to $228 million, from $186 million previously, because of the closure of the high-cost Australian operations.

Nomura also raised its 2009 earnings before interest, taxation, depreciation and amortization for Norilsk by 3 percent to $1.6 billion.

Norilsk will retain an Australian workforce of about 20, reduced from about 500 before it started to cut production, a company spokeswoman said.

The company said the last western Australian assets to close had "potential for further exploration" but would be placed on care and maintenance.

"Care and maintenance, while not permanent, is not just shutting down for a month. It looks like, minimum, a midterm shutdown," Alfa Bank's Ehrlich said.

Norilsk, which supplies about a fifth of the world's nickel, said on Oct. 17 that it would halt production at the Cawse laterite operation, which it acquired through its purchase of OM Group's nickel business in 2007.

In November, the company suspended production at its Waterloo and Silver Swan underground mines, which had produced about 10,000 tons of contained nickel over the preceding 12 months.

Silver Swan is the underground operation at Black Swan, which is an open-pit operation. The projects are 53 kilometers east of Kalgoorlie.

Norilsk acquired these projects, excluding Cawse, when it bought control of LionOre Mining International in 2007.

Norilsk's stock closed down 5.8 percent at 2026.48 rubles on Monday, falling further than the MICEX exchange's metals and mining index, which dropped 2.4 percent.