By James Wellstead – Exclusive to Zinc Investing News
With a slate of zinc and polymetallic mines gearing up for production in the coming years, many junior and mid-tier producers are eager to bring their projects into full swing. As London Metals Exchange (LME) zinc prices are unlikely to hold current high price levels, senior and large-cap producers appear just as eager to increase their reserves and production figures before short-term metal price weakness dissipates.
Canadian base and precious metal miner Lundin Mining Corp (TSX:LUN) was one of the first off the blocks this year with CEO Paul Conibear recently reporting that he is looking to do “something significant this year.” Suggesting non-public zinc, copper and nickel acquisitions valued between C $100 million and $500 million, Conibear noted Lundin’s low stock valuation as the reason for their desire to acquire something “off the beaten path.”
While company valuations are working to regain their depressed levels, zinc prices have been trending upwards over the past 30 days. LME official cash transactions hit US $2,095/tonne and three month contracts traded around US $2,111.50/tonne on 25 January, up almost about 18 percent or US $300/tonne in the past month.
But despite the price gains, analysts at Goldman Sachs (NYSE:GS) reported that LME zinc is now trading at the upper end of its price curve and that its upside from here is limited, especially in the short-term (within 6 months).
Commentary by analysts at BofA Merrill Lynch (NYSE:BAC) also suggested that zinc’s “dim” fundamentals are unlikely improve until 2013. Current low planned production growth from bigger zinc miners in the coming years has lead analysts to believe that the metal “offer[s] value at current prices from a medium term perspective” despite trading near its historic average price.
Back on the beaten path of mid-tier producers, several zinc miners are on track to bring new production online in 2012. While it is unlikely majors are looking to add current production to their operations right, new producers are a likely target for consolidation, as well as acting as an indication of where new zinc mine production may appear from in the future.
Below is a short, incomplete list of those companies who have, or will, begin production in 2012.
Trevali recently announced the start of its initial mineral production at the uppermost portions of its wholly-owned Halfmile polymetallic (zinc-lead-silver-copper-gold) Massive Sulphide Deposit in the Bathurst Mining Camp of northern New Brunswick, Canada.
With 1.18 million tonnes indicated and 153,940 inferred zinc equivalent in its upper zone, and another 4.42 million tonnes indicated in its lower zone, Trevali’s preliminary economic assessment has pegged their rate of return at 16.24 percent, with an expected C$587 million in total cash flow before taxes from metal sales for the life of the mine and operating costs of $62.49 per tonne milled.
Located near the town of Snow Lake in the province of Manitoba, Canada, HudBay’s volcanogenic massive sulfide (VMS) deposit at its Lalor property is expected to extend to the base of the ventilation shaft, which will support its underground 3,200 meter production ramp from the Chisel North mine to the Lalor deposit. With the completion of the ventilation shaft, production can begin as early as the second quarter of 2012 and ramp into full production by 2015.
With 2.552 million tonnes of 5.72 percent zinc indicated and 4.8 million tonnes of 9.26 percent zinc inferred, the Lalor project looks to add to the adjoining Chisel North Mine’s annual production of 213,000 tonnes zinc. Zinc concentrate is refined onsite at the Snow Lake Concentrator which produced 202,000 tonnes in 2010 and will increase invest in a new concentrator at Snow Lake to handle another 4,500 tonnes/day production.
A subsidiary company of the private Grupo Bal, Peñoles is home to one of the largest and richest silver mine in the world operating almost continuously in Mexico since 1550. Announced last year by its CEO Fernando Alanis, Industrias Peñoles is looking to bring its Velardena zinc mine online in 2012 with a daily production of 6,000 short tonnes per day. All in, the total mineral resources of the Velardena property, located 30 km from Cuencamé and including the bodies of North Antares, Antares South and Santa Maria, is said to contain more than 2.4 million tonnes of zinc.
Aa subsidiary of the privately owned Berkeley Mineral Resources (BMR), Albert plans to commence operations following the Zambian government’s announcement that it will soon issue a mining licence for its Kabwe lead-zinc-copper-cobalt mine in central Zambia.
Minister of Mines, Wilbur Simuusa, declared that “operations must commence within 12 months of issuing the licence or else the licence will be revoked…the mining firms should ensure that they submit their plan,carry out the Environment Impact Assement, carry out explorations and commence operations.”
While the project is not yet underway, analysts have predicted the project could be quite successful. With total capital outlays, including borrowings, of just under CA $18 million, BMR is developing a business that should earn revenues approaching $450 million over the next nine years, at margins that should generate about $130 million in profits.
Securities Disclosure: I, James Wellstead, hold no direct investment interest in any company mentioned in this article.
Investing in zinc? Zazu Metals Corporation (TSXV:ZAZ) holds a 50% interest in the Lik Project in Alaska, a joint venture with Teck Resources Limited. The PEA on Lik South estimates that 17.1Mt tonnes of ore milled at an average grade of 7.7% zinc, 2.6% lead and 47 g/t silver would come from the Lik South project.
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