The world’s largest maker of gold and silver mining material, sodium cyanide, has been forced to suspend production in Europe after Russia’s invasion of Ukraine sent energy prices soaring.
Czech group Draslovka said production of the chemical, which is used in the extraction of precious metals from ore, had become uneconomic in Europe, with gas prices in the region at 12 times the levels in the US, compared with just 1.5 times in 2020.
Shortages of supplies in markets reliant on Europe could be severe, the company said. It has 15 per cent of its production capacity in the region.
“We need to decrease production to a minimum for a temporary period and see what the free economy does,” said chief executive Pavel Bruzek. “The whole of Europe is in a similar situation.”
Prices for cyanide have risen 25-30 per cent across global markets but in Europe the company’s costs of raw materials — ammonia and caustic soda — and of energy to make the finished product have collectively increased by 270 per cent in the past year.
In Europe, wholesale gas prices are more than 7 times higher than they were a year ago. Russia provides 40 per cent of the continent’s supply.
Draslovka is the latest in a string of European industrial energy users to halt or cut production because of an energy crisis that was already causing problems across the continent but has been made much worse by Russia’s invasion of Ukraine.
This week, Italian packaging group Pro-Gest suspended activity at six paper mills, Norwegian fertiliser producer Yara slashed production at plants in Italy and France and Spanish steelmakers have cut output.
At the same time, prices for gold, seen as a haven asset, have risen about 10 per cent since the start of February to nearly $2,000 per troy ounce, a level that could persuade producers to extend mines or restart stalled developments.
But Bruzek said that miners could face cyanide supply problems and pointed out that extracting gold from lower quality ores require more cyanide.
Draslovka, which expects to generate more than $450mn in revenues this year, supplies gold mining companies in Turkey, Africa and Latin America.
In December, it completed a $521mn takeover of US cyanide plants acquired from Chemours, which it is keeping open. It has also agreed to buy facilities in South Africa from Sasol, a petrochemicals group.
Bruzek said the company diversified partly because it thought energy prices would rise in Europe, although it did not expect the situation to escalate so quickly. “The speed and magnitude is surprising,” he said.
Francesco Zago, chief executive of Pro-Gest, said one problem was the extreme daily volatility of gas prices when the company sets prices for its products monthly.
“We’re now paying the price of a lot of choices made in the past,” he said, referring to European dependence on Russian natural gas.
