Zinc Outlook 2017: Companies Weigh In

Many analysts predicted twelve months ago that zinc was set to shine in 2016, and the base metal has lived up to the expectations. As a result, it comes as no surprise that zinc was the best-performing LME metal this year, reaching a nine-year peak on November.
The Investing News Network reached out to a number of companies in the zinc sector to get their thoughts on 2016 and on what to expect from next year in the base metal’s market.
CEO of Pasinex Resources (CSE:PSE) Steve Williams, Bryce Bradley, CEO of Thunderstruck Resources (TSXV:AWE), Doug Ramshaw, Director of Vendetta Mining (TSXV:VTT), Tyler Rice, CEO of Margaux Resources (TSX:MRL) and Steve Stakiw, CEO of Trevali Mining (TSX:TV), were able to provide some insight.

Prices increased as expected in 2016

This time last year analysts predicted one more time that zinc prices would jump, due to the tight supply and major mines closures that accounted for over 0.6 million tonnes of production. Zinc investors had also been calling for a sustained zinc bull run that hadn’t materialized. But in 2016 the base metal has been living up to its promises, with prices soaring to multi year highs.
Thunderstruck CEO Bryce Bradley said that she expected the market would turn ‘at any moment’.
“That expectation fueled our motivation to lay low and wait it out while preserving our tight share structure by not spending too much in that challenging exploration environment.”
Pasinex Resources CEO, Steve Williams, also said he was expecting zinc prices to increase this year.
“There was an impressive rise in 2016, about 75% increase from earlier in the year, supported by some improvement in investor confidence in the junior exploration and mining space in 2016 although it was strongly focused on gold stocks. But overall for those of us in base metals it was still a difficult year – certainly way better than 2015.”
After several mine closures that produced a significant amount of zinc, including Perseverance and Brunswick in 2013, and Lisheen and Century in 2015, Vendetta’s Director Doug Ramshaw expected to see inventories to continue to decline and, as a result, a jump in prices.
“While prices are ahead of where I would have imagined they could move to this year, my sense is they are reacting to further strong supply side dynamics with more temporary production cuts by Glencore (LON:GLEN) and Nyrstar (BRE:NYR) announced earlier this year.”
Steve Stakiw, Trevali Mining’s CEO, also agreed, as they were waiting to see some key catalysts occur, specifically the closure of the large Century and Lisheen zinc mines in Australia and Ireland respectively.
“These closures needed to occur to ultimately tip the zinc concentrate market into increased deficits.”

Will the deficit continue in 2017?

This decrease in mine production together with an increased demand from China to support infrastructure plans, could allow the metal rally to continue for many months.
“Zinc has really taken off this year, and I expect that it might continue to do so. Analysts have been reporting a deficit for several years while predicting that the shortage will eventually be reflected in the spot price. That time has come and makes zinc a very attractive investment opportunity,” Bradley said.
Similarly, Williams said he expects to see further increases from the current price, “But I am not as bullish as some price forecasts I have heard. Still I think we can expect higher prices and this should lead to stronger interest by investors in zinc stocks.”
Looking forward to the zinc market in 2017, CEO of Margaux Resources Rice said: “We see continued interest and demand for companies that hold a focus in zinc, given that the base metal has hold above the 5 year resistance level of $1.10USD/pound, hitting a high in excess of $1.29USD/pound.”
Speaking about zinc prices, Ramshaw said that earlier this year he thought 2017 could see prices north of $1.25 at some point.
“Well we are there already, so either we got ahead of ourselves and there will be some sideways movement or the zinc market gets really interesting. Either way, zinc prices at this level are good for the sector and have a way to go during a bull market window that could remain open to 2019-2020.”
Also referring to prices, Stakiw said that the base metal currently seems comfortable in the US$1.20-$1.30/lb range and with the tightening supply environment going forward he anticipates further increases in the commodity price.
“We are feeling very optimistic heading into 2017 as we believe we’re entering the early stages of a cyclical zinc bull market…the last time this occurred, which is typically once a decade, zinc reached a price high of US$2.08/lb in late-2006.”
“Zinc’s supply shortage will support prices if Trump’s economic policies disappoint or Chinese regulators restrict speculation in metals markets,” Molly Shutt, an analyst at BMI Capital in New York, told Bloomberg.
BMO, in their Global Metals and Mining 2017 outlook, forecast that zinc’s prior-year deficits will translate into critically low inventories and potential price spikes, with zinc being their stand-out preferred commodity among the base metals.

Investor Takeaway

Thunderstruck’s CEO explained that every investor should understand that they can make a lot of money in the resource sector if market conditions, good management and favorable commodity prices coincide to allow for a profitable discovery.
“They must also understand that the resource sector is highly cyclical and that investing in mining exploration companies is speculative, timing is everything,” Bradley added.
About the investors interested in the base metal, Ramshaw said that most are concerned about China, due to the unprecedented supply side cutbacks and mine depletions in the rest of the world.
“Chinese production will come on stream to take advantage of higher zinc prices but I believe that it can’t meet the non-Chinese supply side deficit created by these cutbacks.”
He added that while one has to be aware of what China could do, there is probably some middle ground between the bull and bear case for what impact China will have, “that middle ground should still see strong zinc prices.”

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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: Pasinex Resources, Thunderstruck Resources and Trevali Mining are clients of the Investing News Network. This article is not paid-for content.
The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.