Xstrata Alloys confirms the permanent closure of the Windimurra vanadium operation in Western Australia, which has been on care and maintenance since production was suspended in February 2003. The decision follows a thorough assessment of the operation’s future financial robustness and an estimate of the costs of returning the plant to operation and of addressing a number of projects critical to its long-run profitability.
Mr Peet Nienaber, Xstrata Alloys Chief Executive, said, “While there is an understandable perception that it would be attractive to restart Windimurra to capitalise on the current high vanadium prices, it would be irresponsible to our shareholders and other stakeholders, particularly any new workforce, to do so without confidence in the operation’s long-term future. 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 impact the vanadium price negatively. In addition, the stronger Australian dollar and the structural shift in the industry from the production of vanadium pentoxide to ferrovanadium have impacted negatively on the Project’s potential profitability.
“Regrettably, therefore, we have come to the conclusion that Windimurra is not an economically viable operation and a decision to invest capital and restart the operation cannot be justified. We have managed the closure of the plant with scrupulous attention to our responsibilities, especially in respect of the environment and our employees, and have met all the costs and obligations associated with closure. The Xstrata Group remains a significant investor in the Australian resources industry and we are keen to build upon the asset base and positive working relationships we have to the benefit of all stakeholders.”
Mr Tony Simpson, Chief Executive of Windimurra, said, “We are disappointed that Windimurra was not able to realise its potential. Xstrata has spent in excess of AUD180 million on Windimurra and has honoured all of its commitments from day one.
“Given the very significant investment we have made, we have been more motivated than any other party to make the Project a success and we would have liked to see it restart. However, there are significant costs associated with bringing the plant back into production. In addition, a number of critical factors prevented the Windimurra operation from achieving desired cash costs previously and these would have to be addressed – at considerable cost – in any restart. These include the redesign of equipment to bring recovery rates of magnetite up to levels envisaged in the original feasibility study; a re-configuration of the power plant in order to lower operating costs; and the management of emissions to meet current environmental expectations.”
The closure will have no balance sheet implications for Xstrata plc, and total closure costs, to be expensed in 2004, are estimated at around US$8 million.
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