SYDNEY, Feb. 22 -- Miner Xstrata (XTA.L: Quote) may be forced to scale back production or shut down some of its Mount Isa operations, said an Australian environment minister, after excessive lead levels were recorded by an air monitoring site.
Queensland state Environment Minister Kate Jones said Xstrata Mount Isa Mines had been given until Monday to explain why one of its air sampling stations found levels of lead exceeded regulatory limits, local media reported on Friday.
The outback mine produced 126,227 tonnes of lead and 324,164 tonnes of zinc in concentrate in 2009, around 3 percent of the world's mined lead and just under 3 percent of mined zinc supply.
Jones said her department was preparing possible legal action against the company as a result of the lead levels.
"If on Monday, Xstrata's explanation doesn't stack up, then under the law in Queensland there are a number of enforcement actions the department can and will pursue," Jones told Australia's Associated Press news service.
"They could face fines of up to $2 million (under the Environmental Protection Act). We may order them to scale back production or even close the plant," Jones said.
At 1105 GMT, LME lead prices were trading down 0.82 percent at $2,300, little affected by the news, but analysts said prices could yet spike up briefly.
"The lead market is very sensitive to news flow so I wouldn't be surprised to see prices move in response to a story like this," said Jim Lennon, analyst at Macquarie.
"But at this stage we don't think it will have a significant impact on the fundamental balance in the market for lead. When prices ran up last year, we saw a large increase in mine output in China."
Xstrata told local media in Australia it was investigating the reported elevated lead levels, but added that two out of three laboratory tests had not shown any high lead levels.
London-based Xstrata spokewoman Claire Divver said the company is still waiting for the results of the third test. "We're continuing to investigate... and we'll continue to work with the department on this," she said.
Xstrata mines lead, copper and zinc in the Mt Isa region and also operates smelting facilities.
Queensland health authorities have been monitoring lead levels in the Mt Isa area for years after reports of elevated lead levels in local children.
Australia's Magellan mine was shut in April 2007 because of lead poisoning issues, and only shipped its first lead concentrate in September last year after receiving environmental clearance, a closure that helped boost lead prices.
London Metal Exchange lead CMPB3 was one of the world's top performing commodities last year, rising 142 percent, although the current price of $2,300 a tonne is still 40 percent below the record high struck in October 2007.