Middle Tennessee Mines zinc operations placed on care and maintenance

The current financial crisis has taken its toll on Strategic Resource Acquisition's Middle Tennessee zinc operation, forcing temporary closure of the mine, now potentially facing bankruptcy.

Author: Dorothy Kosich
Posted: Friday , 10 Oct 2008

RENO, NV -

Toronto's Strategic Resource Acquisition Corporation (TSX: SRZ) announced Thursday that it will temporarily put the Middle Tennessee Mines zinc operation on a care and maintenance basis.

In a news release, Victor Wyprysky, SRA president, said, "We intend to restructure our obligations and capital requirements to facilitate restarting the operations when prudent. The Cumberland and Elmwood mines are well advanced towards start-up and we have taken Gordonsville further than it has ever produced historically. It is regrettable that the perform storm in commodity and liquidity conditions have converged at this late start of our ramp up."

In an analysis published Thursday, Canada's Haywood Securities called Middle Tennessee Mines "a +10-year asset with a 6-month problem."

Although in September 2007, Haywood called the restart of Pasminco's former Middle Tennessee Mines akin to "waking a sleeping giant," Haywood Analyst Stefan Ioannou noted Thursday, "At current ramp-up production rates (~3,000 tons per day) the operation is not profitable on a sustainable basis."

With "only about $4M in cash (and a working capital deficit of $18M) and a current zinc spot price below $0.70 per pound, Strategic is in no position to achieve ‘self sufficiency' at Middle Tennessee Mines," he added. In August SRA engaged Blackmont Capital, Haywood Securities and Paradigm Capital to act as financial and strategic advisors to the company.

In his analysis, Ioannou said, "In light of current market conditions, amplified by ‘poor guidance' induced investor fatigue specific to Strategic, the company has decided to put Middle Tennessee Mines on care and maintenance while attempting to reorganize its capital structure and obtain necessary funding, on the order of $40M, to re-establish economic stability-this will not be an easy task given the current credit ‘crunch.'"

"With approximately $46M in long-term debt on Strategic's balance sheet, we remain cognizant of the fact that the company is vulnerable to bankruptcy risk," he said. The company has a 60-day period to restructure notes that were due on September 30th. If not successful, the note holders will have an option to demand a $1.9 million second quarter payment. "Hence, we maintain our defensive stance, underpinned by a SPECULATIVE risk profile, until further corporate/project clarity is available," Haywood said.

Falling zinc prices have led to several mines closing or reducing their production. The global zinc market saw a surplus of 77,000 tonnes in the first seven months of 2008, according to the International Lead and Zinc Study Group.