![](https://investorshub.advfn.com/uicon/169016.png?cb=1484998688)
Tuesday, April 03, 2012 5:30:19 AM
Race on to dig new zinc mines as old ones run dry
With experts saying zinc could be in deficit by 2017 if not earlier, miners from Australia to Africa to the European Union are racing against time to attract investment in new projects.
Author: By James Regan
Posted: Tuesday , 03 Apr 2012
SYDNEY (Reuters) -
Zinc miners are betting a long-running global supply glut of the metal used in steel making will turn into a deficit over the next five years as old mines run dry, sparking massive investment in new projects.
From Australia to Africa to the European Union, mining firms are laying the groundwork to dig up an additional 1 million tonnes-plus of zinc annually, nearly one-tenth of world consumption and more than is parked in London Metal Exchange warehouses already overflowing with unsold metal.
Zinc could be in deficit by 2017 if not earlier, experts say, as consumption rises in China, steel manufacturing picks up in Europe and North America and - most importantly - several super deposits run dry, forcing buyers to dip into swollen producer and exchange stockpiles.
With zinc supplies heading for a deficit, Goldman Sachs expects zinc prices to gain around 15 percent by mid-2014.
"While prices are not very good at the moment in zinc, that tightness of supply going forward will drive much better prices," said Andrew Michelmore, chief executive of Minmetals Resources, whose Century mine in Australia is the world's third largest.
LME zinc prices, currently trading at $2,024 per tonne, are off more than 20 percent from the peaks of 2011 and the sector is facing a sixth straight year of surplus.
"The turnaround is more about a shortfall in supply than it is about the growth in demand that is occurring," said Scott Lowe, managing director of Blackthorn Resources, which is digging a new zinc mine in Burkina Faso.
"We think we're on the cusp of a good thing," added Lowe, citing analysts as viewing the zinc market heading for the tightest supply conditions in 30 years.
In 2013, the Xstrata -owned Brunswick and Perseverance mines in Canada, along with the Vedanta Resources Plc -owned Lisheen mine in Ireland run dry, removing more than half-a-million tonnes of zinc from the global system.
CHINA SET TO BUY MORE
Hopes for a deficit by miners come as zinc stocks MZN-STOCKS continue a near-uninterrupted climb since 2007. The International Lead and Zinc Study Group says the global surplus ballooned 36 percent to 353,000 tonnes in 2011.
LME inventories - a depository of last resort - increased during the first two months of 2012 to an average of 840,000 tonnes, almost double the 15-year average of 426,000 tonnes, suggesting another hefty glut for 2012. Last week inventories swelled to a near 17-year high.
"To us, what is remarkable is not how poorly zinc has performed in the last three years, but rather how well, given how dreadful its fundamentals have been," said BNP Paribas metals analyst Stephen Briggs.
As with almost every commodity, mass urbanisation underway in China is behind growth projections for zinc consumption. China accounted for 43 percent of world zinc consumption in 2011, up from just 8 percent in 1992, industry figures show.
China has the largest resource base followed by Australia, Kazakhstan, Mexico and Peru.
But it is still expected to buy more to feed its infrastructure development. More than half the world's annual consumption of 12 million tonnes of zinc goes into making galvanised steel.
HEAVYWEIGHTS VIE FOR MARKET SHARE
With demand expected to rise, Belgium-based Nyrstar, the world's biggest producer of zinc metal derived from ore concentrate, plans to boost output from its own mines by as much as 70 percent this year.
The 2012 mining production target includes 50,000 to 60,000 tonnes of zinc in concentrate from Finnish miner Talvivaara, which has a supply agreement with Nyrstar.
Glencore International and Blackthorn will start shipments of zinc concentrate in the third quarter from the Perkoa mine under construction in Burkina Faso, rapidly building to an annual rate of 90,000 tonnes contained metal.
London-listed Vedanta Resources in 2010 bought AngloAmerican's zinc interests for $1.34 billion and has been touted as a potential buyer of more mines as sector heavyweights vie for more market share.
'READ MY LIPS, NO NEW ZINC'
China's Minmetals is racing to replace at least part of the output it will lose when its Century zinc mine in Australia closes by 2015, taking half-a-million tonnes off the market annually.
Minmetals spent several million dollars trying to find more ore to keep the Century mine going and profit from a turnaround, but in the end was forced to settle for the smaller Dugald River deposit nearby, which is less than half its size.
A full merger of Glencore and Switzerland-based miner Xstrata, now before shareholders, would give the group 16 and 18 percent globally of both zinc ore and zinc metal supply respectively, based on analysts estimates.
Glencore, along with Nyrstar and China Nonferrous Metals Industry, is also helping develop a new mine in Greenland targeting production of up to 150,000 tonnes of zinc a year.
"Our strategy at Teck on zinc the last five years has been, 'Read my lips, no new zinc,' because zinc has been in surplus," said Don Lindsay, president and CEO of Teck Resources, which operates the world's biggest zinc mine in Alaska.
"However, we finally changed our stance on that in November, because we finally see that zinc really is going to switch from surplus to deficit. We don't know exactly when. It certainly isn't this year. But we do see it's going to happen."
(Additional reporting by Sonali Paul; Editing by Sugita Katyal and Ed Davies)
© Thomson Reuters 2012 All rights reserved
With experts saying zinc could be in deficit by 2017 if not earlier, miners from Australia to Africa to the European Union are racing against time to attract investment in new projects.
Author: By James Regan
Posted: Tuesday , 03 Apr 2012
SYDNEY (Reuters) -
Zinc miners are betting a long-running global supply glut of the metal used in steel making will turn into a deficit over the next five years as old mines run dry, sparking massive investment in new projects.
From Australia to Africa to the European Union, mining firms are laying the groundwork to dig up an additional 1 million tonnes-plus of zinc annually, nearly one-tenth of world consumption and more than is parked in London Metal Exchange warehouses already overflowing with unsold metal.
Zinc could be in deficit by 2017 if not earlier, experts say, as consumption rises in China, steel manufacturing picks up in Europe and North America and - most importantly - several super deposits run dry, forcing buyers to dip into swollen producer and exchange stockpiles.
With zinc supplies heading for a deficit, Goldman Sachs expects zinc prices to gain around 15 percent by mid-2014.
"While prices are not very good at the moment in zinc, that tightness of supply going forward will drive much better prices," said Andrew Michelmore, chief executive of Minmetals Resources, whose Century mine in Australia is the world's third largest.
LME zinc prices, currently trading at $2,024 per tonne, are off more than 20 percent from the peaks of 2011 and the sector is facing a sixth straight year of surplus.
"The turnaround is more about a shortfall in supply than it is about the growth in demand that is occurring," said Scott Lowe, managing director of Blackthorn Resources, which is digging a new zinc mine in Burkina Faso.
"We think we're on the cusp of a good thing," added Lowe, citing analysts as viewing the zinc market heading for the tightest supply conditions in 30 years.
In 2013, the Xstrata -owned Brunswick and Perseverance mines in Canada, along with the Vedanta Resources Plc -owned Lisheen mine in Ireland run dry, removing more than half-a-million tonnes of zinc from the global system.
CHINA SET TO BUY MORE
Hopes for a deficit by miners come as zinc stocks MZN-STOCKS continue a near-uninterrupted climb since 2007. The International Lead and Zinc Study Group says the global surplus ballooned 36 percent to 353,000 tonnes in 2011.
LME inventories - a depository of last resort - increased during the first two months of 2012 to an average of 840,000 tonnes, almost double the 15-year average of 426,000 tonnes, suggesting another hefty glut for 2012. Last week inventories swelled to a near 17-year high.
"To us, what is remarkable is not how poorly zinc has performed in the last three years, but rather how well, given how dreadful its fundamentals have been," said BNP Paribas metals analyst Stephen Briggs.
As with almost every commodity, mass urbanisation underway in China is behind growth projections for zinc consumption. China accounted for 43 percent of world zinc consumption in 2011, up from just 8 percent in 1992, industry figures show.
China has the largest resource base followed by Australia, Kazakhstan, Mexico and Peru.
But it is still expected to buy more to feed its infrastructure development. More than half the world's annual consumption of 12 million tonnes of zinc goes into making galvanised steel.
HEAVYWEIGHTS VIE FOR MARKET SHARE
With demand expected to rise, Belgium-based Nyrstar, the world's biggest producer of zinc metal derived from ore concentrate, plans to boost output from its own mines by as much as 70 percent this year.
The 2012 mining production target includes 50,000 to 60,000 tonnes of zinc in concentrate from Finnish miner Talvivaara, which has a supply agreement with Nyrstar.
Glencore International and Blackthorn will start shipments of zinc concentrate in the third quarter from the Perkoa mine under construction in Burkina Faso, rapidly building to an annual rate of 90,000 tonnes contained metal.
London-listed Vedanta Resources in 2010 bought AngloAmerican's zinc interests for $1.34 billion and has been touted as a potential buyer of more mines as sector heavyweights vie for more market share.
'READ MY LIPS, NO NEW ZINC'
China's Minmetals is racing to replace at least part of the output it will lose when its Century zinc mine in Australia closes by 2015, taking half-a-million tonnes off the market annually.
Minmetals spent several million dollars trying to find more ore to keep the Century mine going and profit from a turnaround, but in the end was forced to settle for the smaller Dugald River deposit nearby, which is less than half its size.
A full merger of Glencore and Switzerland-based miner Xstrata, now before shareholders, would give the group 16 and 18 percent globally of both zinc ore and zinc metal supply respectively, based on analysts estimates.
Glencore, along with Nyrstar and China Nonferrous Metals Industry, is also helping develop a new mine in Greenland targeting production of up to 150,000 tonnes of zinc a year.
"Our strategy at Teck on zinc the last five years has been, 'Read my lips, no new zinc,' because zinc has been in surplus," said Don Lindsay, president and CEO of Teck Resources, which operates the world's biggest zinc mine in Alaska.
"However, we finally changed our stance on that in November, because we finally see that zinc really is going to switch from surplus to deficit. We don't know exactly when. It certainly isn't this year. But we do see it's going to happen."
(Additional reporting by Sonali Paul; Editing by Sugita Katyal and Ed Davies)
© Thomson Reuters 2012 All rights reserved
Join the InvestorsHub Community
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.