Sumitomo Corp., Japan’s third-largest trading company, will increase production at its zinc mine in Bolivia this year after the project turned profitable in the past quarter on reduced costs and rising metal prices.
Output will exceed an original plan to produce 225,000 metric tons of zinc in concentrate after ore processing reached 44,000 tons a day in April, 10 percent more than planned, Koichiro Yazaki, manager at Sumitomo’s San Cristobal Project Department, said in an interview in Tokyo. Production was 204,000 tons last year and 69,000 tons in the past quarter.
Metals have gained 36 percent this year, based on an index of six industrial metals, on signs the worst global recession since the Great Depression is easing and as China stockpiled copper, aluminum and zinc. Bank of Japan board member Hidetoshi Kamezaki said today Japan’s economy, the second-largest, is no longer in freefall and a recovery will take hold soon.
“Production of industrial metals will probably increase as the outlook for their demand and prices becomes better on an improvement in global economies,” Takaki Shigemoto, an analyst at Tokyo-based commodity broker Okachi & Co., said today by phone. “Some mines may restart operations that they suspended amid the global recession.”
Zinc for three-month delivery on the London Metal Exchange was little changed at $1,581 a ton at 12:42 p.m. Tokyo time, up 31 percent this year. Prices touched a four-year low of $1,038 on Dec. 12, after reaching $2,900 earlier last year, as the recession eroded demand for the metal used to galvanize steel.
“We expect metal prices will probably increase from the current level, although they may have difficulty returning to last year’s peak,” Takahiro Izuta, Sumitomo’s corporate officer, said in the same interview yesterday. “Prices will likely rebound in tandem with the recovery in global economies.”
Prime Minister Taro Aso has pledged to spend 25 trillion yen ($261 billion) to prop up the Japanese economy and China is spending 4 trillion yuan ($586 billion) to boost its growth as nations around the world commit funds to stimulate a recovery.
Japanese trading companies are increasing overseas resource investments to secure domestic supplies and to benefit from long-term global demand as competition for materials gains amid rising consumption in China. Sumitomo gained ownership of San Cristobal, the world’s sixth-largest producer of the metal and the third-biggest in silver, after buying in March a 65 percent stake held by Apex Silver Mines Ltd.
“We have put the mine under our control as it is competitive in terms of production costs,” Izuta said. The open-pit mine, expected to have a 16-year mining life, produces zinc at a cash cost of 60 cents a pound, or $1,323 a ton, according to Yazaki.
Lead in concentrate output at San Cristobal will this year exceed the planned 82,000 tons while production of silver in concentrate may exceed the planned 525 tons, he said. Lead output was 21,000 tons in the three months ended March 31 and 70,000 tons last year. Silver output was 159 tons in the quarter and 586 tons last year.
Tokyo-based Sumitomo expects to gain 260 million yen in profits from the mine, located about 500 kilometers (311 miles) south of the Bolivian capital La Paz, in the year to March 31, 2010, Izuta said. The company booked a loss of about 6 billion yen from the project last fiscal year.
Zinc and lead concentrates produced at San Cristobal are exported from Chile’s Mejillones port to Japan, South Korea, Spain, Belgium and Australia. About a third of the output is bought by smelters in Japan and another third is shipped to South Korea. More than half of the output is sold under long- term contracts, Yazaki said.
The San Cristobal mine has reserves of 3.2 million tons of zinc, 1.2 million tons of lead and 12,600 tons of silver. The zinc concentrate has a purity of about 55 percent to 60 percent and contains 400 grams to 500 grams of silver per ton. The lead concentrate is about 65 percent to 70 percent in purity and contains 3 kilograms to 5 kilograms of silver per ton.
The San Cristobal mine started production in August 2007 after Sumitomo bought a 35 percent stake in the project from Apex Silver in 2006. Sumitomo’s investment and loans to the project have amounted to almost $900 million, Izuta said. The company paid $27.5 million in March to gain full ownership.
Source: Bloomberg
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