Fox Resources is a small miner compared to the giants, but yesterday it revealed it had been forced to wind down underground mining at its Radio Hill operation in Western Australia and defer a key nickel project after the recent fall in commodity prices. 

Commodity overall prices fell 3% last night, led by oil, copper, grains and some other metals. With the exception of aluminium which hit a high because of power problems hitting production in northern China, the fall continued the down trend seen in the past couple of weeks for metals. The fall has accelerated in recent days: lead fell 14% last week and nickel hit a two year low.

But last night in London zinc rose 2.8%; lead 4.2%; nickel 1.7% and tin 1.8%. Copper fell in London and in New York. Overall, commodities had their worst day of trading since March. Even so, that little burst of strength won’t be enough to encourage Fox to reverse its decision.

It’s another sign, first evident in the March quarter, but obscured by the surge in oil prices and record price rises for iron ore and coal in recent contracts, that the resources boom is very old and looking to disappear.

In a statement to the ASX yesterday, Fox said that it would complete underground mining and milling operations at the Radio Hill nickel and copper mine by the end of this month and defer the start of the Sholl B2 nickel project until 2009 following a fall in the nickel price.

The price of nickel slumped to a two-year low of just over $US20,000 a tonne on the London Metal Exchange on Friday amid a supply surplus for the steelmaking ingredient. (It closed at $US20,950 overnight). Stainless steel makers have been substituting other materials or cutting back on the amount of ferro-nickel they are using ever since prices for the metal spiked to over $US50,000 a tonne 15 months or more ago.

Fox shares dropped 5c, or 6.25%, to close at 75c. The company said it would turn its attention to explore for iron ore, nickel and copper in the Pilbara region of Western Australia and work to improve the efficiency of the Radio Hill mine.

Fox said it would “increase iron ore exploration drilling at the new Mt Oscar Iron Ore Project following recent drilling success. A second drill rig is expected on site in July 2008 and an update on the progress and outlook for Mt Oscar will be announced later in the week.”

Further, Fox will “[c]ontinue base metal exploration at the Bertram Nickel Project, Radio Hill and the De Beers Base Metals Projects. The Company is currently in discussions with China’s largest nickel producer Jinchuan, to boost the Company’s greenfields (no previous exploration) base metals exploration in the region within its 3,000 square kilometres of tenements.

The move has been backed by the company’s largest shareholder, Jinchuan Group, which is China’s largest nickel producer. (It was a big shareholder in Allegiance Nickel which was taken over by Zinifex, shortly before it revealed plans to merge with Oxiana.) Jinchuan holds about 10.92% of Fox.

Sholl B2 was described by Fox in January as a “key deposit” in the company’s developing nickel business and was expected to come into production in the second half of this calendar year.

Judging by remarks from a leading broker about the state of the metals market, Fox won’t be the first Australian miner to feel the impact from sliding prices. Goldman Sachs JBWere said in AZ note to clients on Monday that that it was “another turbulent week for base metals — copper briefly traded at fresh highs for the year on Thursday with cash hitting $4.08/lb, but Friday saw demand worries return to the fore and copper dropped 4%.

“At the other end of the spectrum it was all one way traffic for the oversupplied lead market — prices fell 14% on the week – with cash now at 70c/lb it’s hard to believe lead was trading at almost double that price just four months ago!

“With Peruvian strike action petering out attention is refocusing on the demand side of the equation — in particular China’s resilience to OECD economic weakness. Notwithstanding energy related cost-push and potential for further supply disruptions, the next couple of months could be a bumpy ride for base metals as (northern hemisphere) summer shutdowns exacerbate an already uninspiring demand outlook in the major OECD economies.

“We therefore believe that earnings disappointments and downgrades to earnings forecasts are likely during the July/August period. Coupled with weaker macro-economic sentiment and the likelihood of seasonal softness in commodities prices, this is likely to lead to further share price volatility through the September quarter.”