FNX cuts spending as nickel demand falls

"Attrition across the board," is the mantra of the times for FNX Mining Co. Inc. "We tell our people, we're in a two-year war," said Dave Constable, vice-president of investor relations. "We've got to get from here through to the other side."

Perhaps nowhere is the dearth of both money and markets for miners nowadays more visible than in nickel. Global production has fallen by 20% since late last year as demand melts faster than production can be unwound.

Accessing fresh capital remains a brutal endeavour.

"Equity raising is possible, but it's extremely expensive because most people's shares in the base metals space have been beaten down so much," said Mr. Constable. "As a last resort, perhaps."

On the borrowing side, "it's very hard to get lines of credit, and the interest rates charged on them are very high. If you have one, and you're renewing it, by and large you're probably looking at a three-or four-fold increase in the interest rate and stand-by charges."

FNX, whose McCreedy West and Levack nickel-copper mines are fixtures of the Northern Ontario city of Sudbury, has been forced to make some difficult choices as the spot price of nickel has plunged to about US$4.40 a pound.

The company terminated production at its mines last autumn and began laying off 670 employees -- or 44% of the junior miner's workforce, including cuts at a subsidiary -- in December.

Last month, it severed a US$100-million loan facility with a consortium led by Bank of Nova Scotia, Canadian Imperial Bank of Commerce and Barclay's when new terms became simply too steep to bear.

FNX has slashed exploratory spending in half this year to $10-million and completely redrafted plans to speed up still-profitable by-product production.

With no debt on the books and $130-million in cash, the fact that FNX has taken the sharp step of halting nickel production underscores the depressed environment base-metal producers are in.

"Why should [FNX] trade nickels and dimes here?" said Terry Ortslan, a Montreal-based private consultant. "Shut it down, and when the time comes you turn it on again."

Balance-sheet preservation is the lone goal, said Mr. Ortslan, adding he expects capital expenditure across the global base-metal industry to fall 40% to US$6.5-billion-- "if not more" -- in 2009 from the record-setting amounts spent in 2007 and 2008.

"Canada, being a major mining country, will be a significant member in that."

There will not be much of an improvement in 2010 either, he says.

"If we have to cut back to absolute bare bones, not operating anything," Mr. Constable said, "we'll do that."

jasturgeon@nationalpost.com