The slump in the copper price has made Weatherly International's (WTI:AIM) operations in Namibia uneconomic, forcing the small cap to issue a warning about the future of its two underground mines: Matchless and Otjihase (known as 'Central Operations'). Low selling prices and production problems scare investors, triggering a 22.7% decline in the share price to 1.7p.
'At current production levels and copper prices Central Operations are unsustainable and the Board will review the situation going forward,' declares Weatherly boss Rod Webster.
In the three months to December 2014, the miner produced 1,213 tonnes of copper, a 17% decrease on the previous three months. Cash costs for mining are $7,209 per tonne which is significantly above the price at which the base metal presently trades ($5,690 per tonne).
VSA Capital comments: 'The Weatherly International board now has a more difficult decision to make. It can sustain unprofitable Central Operations for whatever cash flow it generates, or wind them down and spend down cash reserves with the hope that new Tschudi copper mine operations ramp up in time to prevent them from running out of cash.'
Weatherly had $10.8 million cash reserves at the end of 2014. Numis analysts call it 'a grim quarter' for the miner, saying there's not many options for the high-cost Central Operations.
Tschudi is expected to start production in the second quarter of this year where operating costs are expected to be much lower at $4,226 per tonne. The company has been stockpiling ore since last summer so there's material to run through the processing plant which is presently undergoing tests.
For an insight into why the copper price has been weak this year and learn about the outlook for the base metal, make sure you buy tomorrow's (22 Jan) issue of Shares where we discuss the commodity in great detail and analyse three copper mining stocks.