Base Metals

Zinc Investing

Zinc is breaking away from the rest of the base metals and living up to its promise.

For well over a year, metal analysts and mining officials have been saying that zinc has the brightest prospects of the major base metals. This has been due to a predicted supply side deficit in both concentrates and refined metal, resulting from mine closures.

Now, after soaring 43 percent to US$1.05 a pound this year, zinc is breaking away from the rest of the base metals and living up to its promise after advancing from the 2015 average of US$88 cents a pound.
The rising price of zinc will come as no surprise to industry officials who have pointed out that there has been no major investment in zinc as a commodity since 1995. The last tier one discovery was the Cannington Mine in Australia.

It means there has been very little to replace a number of tier one mines which have closed down in recent years, including the Brunswick No. 12 in New Brunswick, Canada (accounting for 2 to 3 percent of global supply), the Lisheen mine in Ireland (which ranked as Europe’s second largest zinc mine), and the Century Mine in Australia (one of the world’s top three producers), which processed its last ore in January 2016.
Vancouver-based Trevali Mining Corp. (TSX:TV) has been one of the few companies to bring new supply on stream by developing the Santander Mine in Peru and the Caribou Mine in New Brunswick.
Prices were also buoyed last year when Swiss metals trading giant Glencore elected to slash 500,000 tonnes of annual zinc production in Australia, Kazakhstan, and Peru.
“In our view, while 2016 represents the fifth consecutive year of market deficits, we are finally seeing a meaningful price response as inventory levels have retrenched to what is considered to be the cusp of relatively tight levels (exchange inventories are down 58 percent from the most recent cyclical peak),” wrote Scotiabank in a morning note to investors on Thursday (August 25, 2016).

Analysts warn that as the world’s largest producer, China could burst the price bubble with a supply side response. However, that is viewed as unlikely in the short term, following reports that China has shut all lead and zinc mines in Hunan province as part of an effort to clean up that part of the mining sector and ensure the safety of workers.
China is forecast to have a mined zinc deficit of 390,000 tonnes in 2016, rising from a deficit of 9,000 tonnes a year ago, state-owned Chinese metals consultancy Beijing Antaike said a recent report that was published by S&P Global Platts. If China is unable to ramp up production, the market is expected to continue to tighten, a move that could drive the price of zinc even higher.

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Securities Disclosure: I, Peter Kennedy, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: Trevali Mining is a client of the Investing News Network. This article is not paid for content.


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