Zinc mining juniors are preparing to fill the gap between growing demand and declining production.
By James Wellstead – Exclusive to Zinc Investing News
While large zinc stockpiles, weak prices and cloudy global economic projections cast a veil of gloom over zinc markets, salvation is not far away. As zinc demand continues to grow globally and key mine sites are set to be taken offline, the long term picture remains one of looming mine-supply shortages.
Commenting on the looming mine shortages in 2010, Graham Deller of the industry consultants CRU Group noted “If you look out three to four years mine production is less than metal demand, but we are wary that enormous stocks of the metal are being built up.” Thus far, Deller seems to be on mark.
Most of concerns and projections for zinc Deller had in 2010 remain, but analysts are beginning to peg 2013 as the beginning of reversal of the current zinc supply excess. As a result, some of the major producers like Xstrata (LSE:XTA), Teck (TSX:TCK.A), Nyrstar (EBR:NYR), and Glencore (LSE:GLEN), have already begun collecting smaller suppliers in order to pad their resource numbers in the coming years.
Nyrstar, the world’s largest producer of zinc, acquired Breakwater Resources (TSX:BWR) this summer for US $663 million, pushing their level of zinc integration from 31 to 43 percent. A few months later, Nyrstar announced that it had lowered its forecast for output from mines for 2011 to 205,000 metric tonnes down from earlier prediction of 210,000 metric tonnes.
Xstrata has also been active with its recently closed acquisition of the Hackett River and Wishbone exploration properties, located in the Western Kitikmeot region of Nunavut, Canada, from Sabina Gold and Silvercorp Metals (TSX:SVM) for a cash consideration of CDN $50 million.
Even Glencore, who will soon become able to issue more stock after its initial IPO lockup period, could potentially shake up the zinc market through continued acquisitions or mergers of the likes already seen this year by the company in other sectors of its operations.
As a result, the buyouts and acquisitions look to be only in their beginning stages. The following is a small list of some of the potential targets for suppliers looking to pad their supply and meet the growing demand for, and shortages of, zinc.
One of a number of promising zinc plays in the Canadian North, Canadian Zinc’s Prairie Creek property progressed through many of its crucial environmental assessments this year related to its application for land use permits and licenses. With an existing production of 1,000-tonne-per-day mill and supporting infrastructure, Canadian Zinc is looking to bring its Prairie Creek zinc-silver-lead mine to full production in the next few years. After spending $18.7 million in 2006-07 on underground exploration, a technical report was produced (to NI 43-101 standards) which indicated Measured and Indicated Resources of 5.84 MT grading 10.71 percent zinc, 9.90 percent lead, 161.12 grams silver per tonne and 0.326 percent copper. In addition, the report also confirmed a large inferred resource of 5.54 MT grading 13.53 percent zinc, 11.43 percent lead, 215 grams per tonne silver and 0.514 percent copper, alongside additional exploration potential.
Further drilling at the Prairie Creek property completed this summer were successful, the company said in their third quarter report, as its Drillhole PC-11-190 intersected a new area of stratabound-type mineralization approximately 150 metres below the 870 metre mine level, the lowest level of current developed workings at the Prairie Creek Mine.
Canadian Zinc’s share price has taken a hit recently due to its decrease in net income since the same period last year as a result of market losses on the company’s shares in Vatukoula Gold Mines plc (LSE:VGM), and by higher exploration and evaluation expenses.
Trevali Mining is a small cap producer with a potentially strong future. With operations in Canada and Peru—its Halfmile and Santander projects—it plans to have two mines in production by early 2012 and is targeting 80,000 tonnes per year by 2015. With a market capitalization of around CDN $130 million, it is seen as one of the few remaining big targets for a forward-looking producer with cash.
Its New Brunswick Halfmile Mine Project is currently underway with a planned production rate of 2,000-tonnes-per-day anticipated to commence by year-end 2011. In Peru, the company’s Santander zinc-lead-silver mine project located in the Central Peruvian Polymetallic Belt, mine commissioning is anticipated to commence in the first half of 2012 with full production to follow immediately thereafter. The Santander operations have a planned 2,000-tonne-per-day output.
Focused on finding and developing the next generation of zinc deposits in the ore fields of Poland and Ireland, Rathdowney has significant potential to become a significant zinc producers in Europe, a region where refined zinc demand grew by 6.8 percent last year.
Rathdowney’s Polish projects are focused on the Upper Silesian Mining District, a region of world-class Mississippi Valley-type zinc-lead deposits where it has two prospecting concessions and has applied for a third covering a 150 km² area. Rathdowney’s Olsa zinc-lead project, located near the other zinc-lead deposits which have historically produced 125 MT of ore grading 4 percent zinc and 2 percent lead – recently released some of promising assay results with high zinc concentrations. Rathdowney’s current extensive multi-phase campaign of resource verification and exploration drilling is expected to advance the project towards completion of an initial NI 43-101 compliant resource estimate in 2012.
Rathdowney also has six projects covering 1,600 km² in Ireland. Drilling began in April of this year at the company’s Mallow property in southern Ireland where major new zinc-lead discoveries have been made by Teck and Xstrata (which have inferred resources of 25.9 million tonnes grading 7.51 percent Zn and 1.38 percent lead at 4 percent zinc equivalent). Two additional rigs will be added to test other priority targets within the Mallow project-area and at the Westmeath South property.
Securities Disclosure: I, James Wellstead, hold no direct investment interest in any company mentioned in this article.