Zinc Metal News: Glencore's McArthur River Facing Shutdown

As zinc-focused investors well know, the base metal‘s positive outlook largely rests on coming zinc mine closures. Multiple major zinc mines have closed recently or are set to close, and as it stands there simply isn’t enough supply set to come online to fill the void. 
That situation makes last week’s news that Glencore’s (LSE:GLEN) McArthur River zinc mine is facing closure an interesting prospect. According to Reuters, the Australia-based mine, which is one of the world’s biggest, “could be ordered to close unless it improves its environmental record and increases a financial bond covering rehabilitation of the site.”

Environmental violations?

Problems started last week, when Australia’s ABC revealed that Glencore didn’t act when the chief health officer of Australia’s Northern Territory told it to warn people living near McArthur River “not to eat fish caught in two creeks or near Bing Bong port because they were contaminated with heavy metals.”
The publication gained the information from mines department briefing documents released under freedom of information laws to the Environmental Defenders Office (EDO), a national network of environmental lawyers. The EDO has since come forward to lambaste Glencore. “What we’ve known for some time, that these documents crystalise even further is just the systemic non-compliance with environmental and health regulation at McArthur River Mine,” David Morris, the Northern Territory EDO’s principal lawyer, told ABC.
While that sounds fairly negative, Greg Ashe, chief operating officer of Glencore Zinc, quickly responded that improvements have been made to McArthur River since the data in those documents was collated. “Some of that information in fact is six or 12 months out of date and no longer reflects the current operating status of McArthur River,” ABC quotes him as saying in another article.
He added that the next round of testing will show improved results, and said, “[w]hat we do have is a very small number of fish that were identified that contained elevated levels of lead, within the mine site on Barney Creek. That is seasonal and we’ve done a lot of things there to see that.”

What about that bond?

While that particular environmental issue may be in control at McArthur River, that still leaves the issue of Glencore’s financial bond for the site. According to ABC, all Northern Territory miners “are required to lodge a bond with the Government that would cover 100 per cent of their site’s final remediation cost at every stage of the mine’s life.”
While Glencore has lodged a bond for McArthur River in the past, Adam Giles, the Northern Territory’s chief minister, now believes the mine requires a larger bond “to take account of the large amounts of reactive iron sulphide the company is mining out and storing in its waste rock pile.”
As a spokesperson from Mines Minister Dave Tollner’s office said, “[t]he major issue is the amount of reactive rock coming out of the mine, which was on a scale no-one anticipated, and the result is that the final remediation costs have increased.” One concern is that if Glencore does not increase its bond, taxpayers could utlimately be forced to pay for remediation at McArthur River.
Again, that might sound negative. However, Glencore has also been quick to respond to such criticism. Ashe told ABC, “[w]e are in discussions with the government over an increase in the security bond for McArthur River. We have a process, we are following the process. We are comfortable we will get to an end result that meets the expectations of the government, Territorians and McArthur River.”

Investor takeaway

Given the current zinc supply situation, investors are no doubt wondering whether the past week’s events at McArthur River will impact supply of the metal further. As yet, the answer seems to be that it won’t — at least not yet. Glencore still appears to be working with the Northern Territory government to resolve both the environmental and bond issues at McArthur River, meaning that a solution may yet be in the works. Until the situation develops further it will be tough to make predictions about any impact to zinc supply.
 
Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.