Melbourne-based New Century Resources (ASX:NCZ) has signed its first long-term zinc offtake agreements with Swiss traders Mercuria Energy Trading and Transamine Trading.
The Australian company will supply the traders with 75,000 tonnes of zinc concentrate from its past-producing Century mine in Queensland. The firm is on track to restart production there later this year.
“The execution of these initial offtake agreements represents another exciting milestone for New Century as we progress toward production in Q3 2018,” New Century Managing Director Patrick Walta said on Wednesday (February 8).
The deal is part of a tender offer for 1.5 million tonnes, a volume that represents about three and a half years of production from Century. According to the company, 11 interested parties were involved, and further offtake deals may be signed with shortlisted participants.
“The initial agreements have been competitively negotiated, with terms reflecting the strong zinc market fundamentals and current scarcity in supply of large tonnage zinc concentrate offtake available around the world,” the company said in a statement.
Meanwhile, New Century also said it has received a request for arbitration concerning offtake rights for the mine by Nyrstar (EBR:NYR). The Belgium-based business alleges that former owner MMG Australia is the current guarantor to these agreements.
“New Century was not aware of the existence of any such deals with Nyrstar when it acquired its interest in the Century zinc mine and copies of these agreements were not provided to the company at the time of the acquisition,” the company said.
The Century mine was closed by MMG (HKEX:1208) in 2016 due to a weak zinc price environment. At the time, other zinc mines were also closed, including Vedanta Resources’ (LSE:VED) top zinc-producing mine Lisheen. Meanwhile, Glencore (LSE:GLEN) and Nyrstar cut their production, fueling supply concerns in the market and pushing prices higher.
As a result, zinc prices have increased over 24 percent year-on-year, and hit a fresh decade high in January. The base metal is currently trading at $3,380 per tonne in London.
With higher prices and better market conditions, many investors are now expecting zinc mines around the world to restart this year. CRU Group analysts expect around 775,000 tonnes of new zinc mine supply to come onstream in 2018, with MMG’s Dugald River mine and Vedanta’s Gamsberg mine being notable contributors to production.
On Wednesday, after a brief suspension in trading on the ASX, shares of New Century closed down 2.34 percent, at AU$1.25. The company’s share price has been on a downtrend since the start of the year, and has fallen more than 8 percent year-to-date.
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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.