Central Asia Metals may lose zinc, lead output for a month on tailings dam leak: CEO

London — Base metal producer Central Asia Metals Ltd. expects to lose production of some 400–500 mt/week of zinc-in-concentrate and some 500–600 mt/week of lead-in-concentrate over the next month as a result of a tailings dam leak that occurred Sept. 14 at its Sasa mine in North Macedonia, CEO Nigel Robinson said.

"Initial indications are that there will be no more than a month of shutdown," Robinson told S&P Global Platts in a Sept. 16 interview, adding that the situation at the TSF4 dam is now under control. "But we can't start up until absolutely confident. In perhaps one or two weeks' time we will have an update," he said.

The Sept. 14 leakage continued for about an hour and a half before being halted, he added.

CAML shut down its Sasa processing plant immediately after the leakage, and then proceeded with "an orderly shutdown" of mining activities, Robinson said. Nobody was hurt in the incident, he added.

There are only several truckloads of concentrate inventories at the site due to limited storage space but these can still be shipped to smelters, he said.

"This will impact 2020 production," he said, noting that the company's zinc and lead guidance is now under review, following a first-half zinc-in-concentrate output from the site of 12,203 mt and a lead-in-concentrate output of 15,140 mt, in both cases higher than in the same 2019 period.

The previous 2020 guidance had been for 23,000–25,000 mt of zinc and 30,000–32,000 mt of lead.

Financial impact

CAML has withheld the payments of dividends pending greater clarity on the TSF4 leakage. Dividends were originally expected to have been reinstated Sept. 16 with the announcement of "robust" H1 results, following a suspension earlier this year as a COVID-19-related precaution.

The company is cooperating with an investigation into the dam occurrence, which has come under public scrutiny following global moves to tighten up on tailings dam safety following miner Vale's disastrous iron ore tailings dam incident in Brazil in 2019.

"Based on the initial information available, CAML believes that the facility can be repaired and secured and that an extended shutdown of the processing plant is unlikely," the company said in its H1 statement. "Work with relevant authorities is ongoing to understand the root cause and likely timings to recommence production."

Metals and mining analysts at Berenberg Bank led by Richard Hatch quantified the Sept. 14 leak as "an ESG negative event for CAML and will act as a headwind to the investment case, despite it stopping the leak and nobody being harmed."

"In addition, it is possible that the company could see financial penalties for the impacts of the leak; however, it remains very early stage and there is no clarity around this ... Until the company is able to clarify the cause and impact of the leak, we expect the shares to remain under pressure," they added.

"We are not going to speculate on financial losses," said Robinson, adding that for the company the accident is "a serious matter; it was a small element of material that leaked over a small period of time but any leakage is unacceptable and ... we are determined to put right any damage that we have caused."

The dam that leaked is a downstream facility commissioned in April under the company's stewardship. Four other dams that have been used at the site, with a similar design and over a 20-25 year period, have given no problems, Robinson said. Following the incident, changes may be necessary in operations and compliance, he indicated.

Copper output continues on high prices

CAML's copper production at its Kounrad mine site in Kazakhstan continues as usual despite the Sasa mine incident, and the company is on course to achieve 2020 copper production guidance of 12,500-13,500 mt, it said.

Robinson noted that zinc, copper and lead prices are all "pretty good" at the moment, with copper prices having recovered "more than expectations of three or four months ago" from the COVID-19 downturn, partly on government stimulus and some "overheating" from China. He added that prices for both zinc and copper can be expected to "come off a bit to more conservative prices in 2021-22."

Due to the low-cost nature of the company's copper operations, "I wouldn't necessarily lose sleep if copper came off $1,000/mt," he said.

LME cash copper prices closed at $6,776/mt Sept. 16, having recovered from levels of $4,797/mt in the last week of March.