Base Metals

Zinc Investing

In the latest zinc news, MMG has released an updated development plan for its Queenland-based Dugald River zinc mine. It is expected to come online in 2018.

Exciting zinc news hit the market Tuesday when MMG (HKEX:1208) released an updated development plan for its Dugald River project in Queensland. Zinc market watchers have been waiting to see if the mine will be able to fill the void that will be left by the Century mine’s upcoming closure.
The updated plan for Dugald River points to production of 1.5 million tonnes per year, including 160,000 tonnes of zinc in zinc concentrate, plus by-products. That’s less than the original estimate of 200,000 to 220,000 tonnes of zinc in zinc concentrate; however, the mine’s life has been extended from 20 years to 28 years, meaning that it will be one of the world’s 10 top zinc mines once it is in operation.
That’s also less than Century produced in 2014. That year, the mine, which is also owned by MMG, produced 465,969 tonnes of zinc in zinc concentrate. 2015 output is expected to come in at 320,000 to 370,000 tonnes of zinc in zinc concentrate as the mine winds down.
Even so, having the new supply come online will definitely be positive for MMG, especially considering the development issues the company has faced at Dugald River in the past. The project was put on hold in 2013 after MMG realized that the ore body was “more complicated than expected.” Dugald River is ultimately expected to start producing in 2018.
“The updated development plan reflects a prudent response to mine geotechnical conditions,” MMG CEO Andrew Michelmore said. “By taking the time to understand the unique characteristics of the ore body, we now have a robust plan for Dugald River that maximizes long-term value for shareholders.”

More supply needed

Optimism about the zinc price is currently running high, and while Dugald River’s entrance to the market might have some investors worried, it likely won’t be a problem. Jonathan Leng of Wood Mackenzie said at PDAC that together new projects, including Dugald River, “could deliver around 700,000 tonnes per year in zinc concentrate by the end of the decade,” but added that much more than that will be needed to meet demand.
That sentiment was echoed in BMO Capital Markets’ Q3 2015 Commodity Canvas report, released earlier this month. In it, the firm predicts a positive six-month outlook for zinc. The report states that it anticipates a zinc deficit this year, rather than in 2017 as it originally predicted.
Furthermore, the fact that Dugald River is set to start production in 2018 — not this year, as originally predicted — may benefit the zinc price. As Michelmore told Bloomberg, the delay will result in a production gap, but “will probably help the price.”
According to the company, the mine will also benefit Queensland for years to come. “During development and operation, the Dugald River project would provide 28 years of economic, employment and revenue contribution to Cloncurry and Queensland,” Michelmore said.
At end of day Wednesday, MMG’s share price was up 10.31 percent, trading at HKD$2.14. The stock is down by 10.46 percent year-to-date.

Securities Disclosure: I, Kristen Moran, hold no direct investment interest in any company mentioned in this article.
Related reading:
BMO Capital Markets: Zinc Deficit Coming in 2015
MMG to Decide on Dugald River Development Plans by Q3 2015
Century Mine Closure to Leave a Hole for New Zinc Producers

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