Collapse in zinc price core of problem

TARA MINES'S current difficulties can be traced directly to the fluctuating fortunes of the metals it takes out of the ground, zinc and, to a lesser extent, lead.

Back in November 2006, when the market peaked and the boom was still in full swing, a tonne of zinc was selling for $4,580. Today, with the chill winds of recession blowing through all corners of the Irish economy, the price has fallen to less than one-third of this figure, or just $1,300.

Just as with the economy generally, the price of zinc bobbed along satisfactorily for the first half of last year, and the company even negotiated a two-year pay and conditions deal with its unions.

However, the price slumped from October on. Having reached $2,800 last March, it plummeted to under $1,100 in November before recovering slightly after Christmas.

With the value of its main product seriously reduced, Boliden, the Swedish owner of the mine, is now seeking to cut costs and walk away from the pay deal it agreed only six months ago.

Zinc is used mainly in construction and the car industry, so it is hardly surprising that its price is linked to the fortunes of these two sectors. The price peak in 2006 came as a result of surging demand from China, and this encouraged other producers to restart their mines, according to Leon Westgate, a commodities analyst with Standard Bank in London.

He says the extra output eroded the price and meant the general recession and crisis in the financial markets hit home harder when they happened. "This really hammered the nails in zinc's coffin, and things were made worse by panic selling of commodities by investors seeking to pay debts elsewhere."

Mr Westgate says the worst of this selling is over and the price of zinc has "bottomed out" but he isn't optimistic for the future. "I'd expect prices to stagnate until there is a turnaround in the broader economy. When consumers go out and buy things, and invest confidence in the economy, we'll see an improvement.

"The concern is that this recession may be longer and nastier than people think."

Tara is not the only mine to be seeking to cut back, he points out. The Leonard Shelf mine in Australia closed last year, only a year after reopening, because of declining profitability.

Lead, the other metal mined at Tara, has also seen its price fall from a peak of over $3,000 a year ago to $1,120 now.