As unrealistic NYCOMEX metals pricing begins to take hold, the end result indicates that mines across the globe are being forced to close due to poor economics. Since a big part of silver production is from by-products of such mines, expect a further squeeze on silver supply in the near future. Therefore, the gold/silver shorts better pray that investment demand weakens soon otherwise default headlines are on the horizon.

Regards - VHF

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Low metal prices prompt Canadian mine closures
10.20.08, 5:14 PM ET

By Cameron French

TORONTO (Reuters) - A worldwide wave of mine closures has finally hit Canada, with a pair of small producers saying they will suspend two operations in the country, and another mid-tier producer saying it will soon address the "challenging" economics of one of its nickel mines.

While several mines in other countries, including operations run by Canadian-based miners, have been put on hold, mine operations within Canada had so far been untouched by plunging base metal prices.

On Sunday, however, First Nickel said it had suspended production at its Lockerby Mine in nickel-rich Sudbury, Ontario, due to low nickel prices.

That followed Blue Note Mining's announcement Friday that it will put its Caribou zinc and lead operation in New Brunswick on care and maintenance, as current prices have made it unprofitable.

"The fact is, the current (zinc) price of 50-53 cents a pound is too low for the industry," said Hendrik Visagie, an analyst at Octagon Capital. He predicted the wave of global mine closures will continue, but said some Canadian operations will be protected by the falling Canadian dollar.

FNX Mining, meanwhile, will likely address the "challenging" economics of its Levack nickel mine in Sudbury when it announces its third-quarter results next month, said David Constable, FNX's vice-president of investor relations.

While not commenting specifically on whether FNX may decide to suspend the operation, Constable said the sharp drop in nickel prices and high treatment costs charged by processor Vale Inco make the mine a tough go.

"I would think, given the low accountabilities that we are currently receiving from Vale Inco, and given the low commodity prices, the combination of those things would certainly make it really challenging to get a positive outcome there," Constable said.

"I think we'll make a comment about that as the third quarter comes up."

The Levack mine sold about 6.3 million pounds of payable nickel in the first half of the year.

FNX bought the mine from Inco -- which is now part of Brazil's Vale -- in 2002. Vale Inco processes FNX's ore at its Sudbury operations.

In a research note, RBC Capital Markets analyst Adam Schatzker said he expects FNX to announce it will put the mine on care and maintenance due to its deteriorating economics.

Nickel prices have fallen about 60 percent this year, and were at $10,585 a tonne after touching a five-year low earlier on Monday. Zinc is down 48 percent in 2008, and was at $1,181 a tonne Monday.