Xstrata Closing Copper, Zinc Plants

Xstrata Copper Canada will permanently cease operation of its copper and zinc plants at the Kidd Metallurgical site in Timmins, Ontario, on May 1, as part of a plan to restructure its Canadian metallurgical operations. The Kidd mine and concentrator will remain in operation.

The decision comes after an investigation of various options to improve the financial performance of these assets in the face of global smelting overcapacity, record low treatment and refining charges, increasing operating and capital costs to run and maintain these facilities and lower demand and sales prices for sulphuric acid.

Following the shutdown of these operations, the remaining Kidd assets will be integrated with the smelting and refining assets of Xstrata’s Horne smelter and CCR refinery to improve the overall financial competitiveness of the Canadian division and balance concentrate supply with smelting and refining capacity in the region. 

In addition, Xstrata Nickel has undertaken a full assessment of the fair value of its assets following the substantial restructuring of its business undertaken and as part of the annual business planning process which began in July.
Xstrata Nickel’s restructuring included the closure of high-cost, end-of-life mines in Sudbury, Ont., the suspension of the Falcondo and Montcalm operations, significant reductions in operational and corporate costs and the deferral of the Fraser Morgan and Sinclair Underground growth projects.

The impact of these restructurings on exploration potential, life of mine plans and expectations of post-restructuring capital and operating costs has continued to evolve over the course of the year.  

 “The impairments announced today reflect the structural changes made to our nickel business during 2009, together with the very significant impact of short and medium term currency movements, which have resulted in an exceptional impairment charge against Xstrata’s nickel assets.  Non-cash charges at Kidd and Altonorte are due to the shutdown of Kidd copper and zinc plants and our view that the custom smelting market will remain challenging going forward,” said Mick Davis, Xstrata’s CEO.

“As anticipated at the time of acquisition, Xstrata’s nickel assets generated significant value and cash flows in the early years post acquisition, resulting in a lag in depreciation charges compared to the net present value of these assets. A substantial portion of the fair value of the Falconbridge acquisition was allocated to the nickel business, justified by the robust earnings of the business in the initial years.

While the value of Xstrata’s assets continues to exceed book value by some $35 billion at a Group level, an increase of $10 billion over last year, under IFRS we are unable to reallocate this surplus to these nickel assets.”