Xstrata mothballs Windimurra

Despite high vanadium prices, London-listed diversified miner Xstrata has decided to close the Windimurra vanadium pentoxide operation permanently. The site is 500 km northeast of Perth, Australia.

The plant has been dormant since early 2003 and would have required a significant investment to reactivate. Specifically, new equipment would have been required to raise magnetite recoveries to feasibility levels; the power plant would have to be reconfigured to reduce operating costs; and emissions would have to be reduced to meet environmental standards.

Says Peet Nienaber, CEO of subsidiary Xstrata Alloys: “The current vanadium spot price is unlikely to be sustainable and cannot be used as a realistic long-run average price, particularly as Windimurra’s return to production would itself be likely to affect the vanadium price negatively.”

In its first full year of production in 2002, Windimurra produced more than 12 million lbs. vanadium pentoxide, representing about 10% of the worldwide production. Before being suspended in February 2003, the operation churned out 614,000 lbs. Its annual capacity is 16.4 million lbs.

The decision to close was influenced by the stronger Australian dollar and the steel industry’s shift to ferrovanadium from vanadium pentoxide. Vanadium is used to strengthen steel.

Xstrata spent about A$180 million on the project before it was suspended. However, the permanent shutdown is not expected to result in a writedown of assets on its balance sheet.

The company plans to spend US$8 million on cleanup and decommissioning; the costs will be expensed in 2004.

Australian-listed Precious Metals Australia retains a 15% net profit interest in Windimurra. The royalty includes a minimum payment of A$500,000 per year until the site is completely rehabilitated. If Xstrata ever decides to resume production, PMA will revert to its 15% net profits interest.

Xstrata has also suspended production at its Vantech vanadium operation, in South Africa, owing to ore depletion.

Elsewhere in the country, Xstrata recently expanded its Rhovan operation. In 2003, Rhovan produced 18.2 million lbs. of vanadium pentoxide and 6.3 million tonnes of ferrovanadium.

Vanadium pentoxide prices currently hover around US$5.50-US$6 per lb., up from US$1.80 a year ago. So far this year, prices for ferrovanadium have rise 125% to around US$12.88 per lb.