Blue Moon Metals Inc (BMOOF)

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Zinc prices rise to 10-year high after more than 500 jobs cut in northern Australia.

http://ab.co/2i9aX1j

Mining company Glencore's bold strategy to take about a third of its zinc off the market in 2015 has largely been credited for the mineral hitting a 10-year high.

Glencore's Lady Loretta and Mount Isa operations, as well as McArthur River in the Northern Territory, took the brunt of the 2015 supply cuts, with more than 500 jobs lost.

However, resource analyst Gavin Wendt said zinc was probably the best performing commodity in the past five years.

"If we go back to early 2016, we've actually seen a more than doubling in the price of zinc," Mr Wendt said.

Zinc is currently trading at more than $US3,000 a tonne on the London Metal Exchange and earlier in October reached a 10-year high of $US3,308 a tonne.

"It's reflective of very sound fundamentals associated with the commodity itself and by that I mean rising demand coinciding with a situation where supply has been restricted," Mr Wendt said.

Picture of John Tully
Mount Isa real estate agent John Tully says extensive cuts in zinc supply coincided with copper cuts and plummeted the population of the town. (ABC Rural: Eric Barker)
Mount Isa population declines dramatically
With a strong reliance on mining, Mount Isa in north-west Queensland, was one of the main towns impacted by the zinc production cuts.

Mount Isa in north-west Qld
Mount Isa, in north-west Queensland, was one of the main towns to suffer from the extensive job cuts. (ABC TV News, file image)
Real estate agent John Tully said Glencore's decision to restrict its zinc supply came at a time when the town's copper mine, which is about 500 metres from his office, was also scaling back.

"It was pretty dramatic because they were putting off big numbers at the mine," Mr Tully said

Mr Tully said the quick decline in population really put the pressure on the real estate market.

"During that period there were a lot of bank recoveries, but now we are coming to the end of them hopefully," he said.

"We're based on the world economy, because what we have in the ground the rest of the world needs and until the world wants it, we just have to hold our ground."

Australia takes most of the supply cuts
While Glencore's supply cuts physically took a large amount of zinc off the market, Mr Wendt said it also had a phycological impact on the market.

"When market watchers know that there is real action being taken by Glencore, which is the biggest producer of zinc in the world, then that has a big psychological impact on the market," he said.

"There's a feeling that we might see other producers falling into line with Glencore and it puts question marks over the supply side."

Glencore's restriction of supply in 2015 coincided with MMG's Century Mine operation in the Gulf of Carpentaria, which was the world's largest open-pit zinc mine, coming to the end of its life.

"The market knew it was happening, MMG had communicated this to the market for several years, that the mine life was running out and the operation was set to close," Mr Wendt said.

"Century wasn't the only mine, there were mines all around the world that fortuitously had closed within a 12-month window of each other, which has exacerbated the supply situation."

MMG Ships a load of zinc out of Karumba
A load of zinc from Century Mine leaves the Gulf of Carpentaria. (ABC Rural: Virginia Tapp)
No plans for Glencore to increase production
Glencore's chief operating officer for Australian zinc assets Greg Ashe told the ABC in August that the market was still too volatile for the company to start increasing its production.

"As little as 18 months ago we saw zinc at a five-year low and today it's at a 10-year high," Mr Ashe said.

"We would like to see a little bit more certainty in where the price is going before we bring those metal units back into production."

Mr Ashe said with the company sitting on some high-grade zinc assets it did not want to risk another drop in price.

"The thing with Lady Loretta, the next 12 months of production that comes out of there will be the highest grade, highest margin material that happens, so we need to make sure we get it right," he said.

While Glencore waited on more certainty in the market, John Tully was confident Mount Isa would make an economic comeback.

"I've always had a lot of confidence in Mount Isa; it's one of the greatest towns in Australia and it has shown it with how we've come through this last one," he said.