The lowest zinc prices in 15 years and lower-than-expected production from the Galmoy mine in Kilkenny have produced heavy first-half losses for Arcon, the mining company 44 per cent-owned by Sir Anthony O'Reilly.

Losses in the first half rose €2.9 million to €10.8 million (£8.51 million) with metal sales falling 19 per cent to €27.8 million.

Arcon is now in discussion with its bankers about the group's $82 million (€89.9 million) debt. Under the current arrangement, a minimum of $11.1 million is due to be repaid by the end of June 2002, but Arcon is negotiating the repayment terms so there will be no minimum repayment next June. On the basis that the debt repayment schedule will be renegotiated, Arcon's half-year results were prepared on a going-concern basis.

In the first half, the average zinc price was $977 a tonne compared with $1,131 a tonne in the first half of 2000.

Chairman Mr Tony O'Reilly Jnr warned: "There is little short-term sentiment for an immediate strengthening of commodity prices." The current zinc price is below $800 a tonne.

He said, however, that better underground mining conditions were likely in the second half of the year as mining operations extend into new ore zones.

"This, allied to our expansion plans, points to a future recovery for our company," he stated.

During the half-year, Arcon processed 258,000 tonnes of ore and shipped 41,650 tonnes of zinc concentrate to smelters.

But production was 13 per cent below plan and this together with a 13 per cent fall in zinc prices had a negative impact on cash flow.

Arcon is continuing its exploration programme in the surrounding area.

Drilling has recommenced after the foot-and-mouth restrictions at the Rapla prospect, 5 km east of Galmoy, where drilling has encountered significant zinc mineralisation.