Zinc is running out- only three months supply left

[HollandPark]

Zinc supplies are quietly running out

 

Myra P. Saefong, MarketWatch ... Dec 15, 2006

 

SAN FRANCISCO (MarketWatch) -- It's zinc's turn to shine.

Spot prices for high-grade zinc have more than tripled on the London Metal Exchange in the last two years -- and the price rally won't likely end soon with demand for the industrial metal far outpacing supplies, analysts said.

After many years of languishing at low levels caused by abundant supplies, spot prices for high-grade zinc climbed to over $4,400 per metric ton as of Wednesday on the LME -- up almost 270% from 2004's levels.

 

That's quite a change for the metal that's mostly used to coat steel and to act as a rust inhibitor.

 

CHARTS

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"Zinc has been perhaps the worst investment in major metals during the past several decades, which has resulted in significant underinvestment in exploration," said Dr. Harlan Meade, president and chief executive officer of both Pacifica Resources Ltd. (CA:PAX: news, chart, profile) and Yukon Zinc Corp. (CA:YZC: news, chart, profile) .

"The addition of several large mines in the mid 1990s simply flooded the market with zinc," he said.

New zinc output, in part, was made possible because of byproduct credits such as copper and silver that sometimes provided enough added revenue to offset zinc prices that really weren't high enough to encourage exploration or development, he said.

 

Now the zinc market faces a supply deficit, "caused by the depletion of many of our large mines," Meade said.

Exacerbating the problem, China, "who dumped zinc on the market during the 1980s and 1990s, became a net importer of the metal in 2003 as the country's consumption took off," he said.

 

China's influence

Indeed, China's zinc demand has been "rising at an amazing rate," said Eric Coffin, co-editor of HardRockAnalyst.com, which offers publications focused on resource stocks.

He blamed "extremely high capital investment growth," much of which is centered on construction, for the increase in Chinese consumption, which climbed 35% between 2003 and 2005.

"Zinc is a pretty basic industrial material," said Lawrence Roulston, editor of Resource Opportunities. "Most consumers would not even be aware that they come in contact with it many times a day," he said, pointing out that a typical car uses about 22 pounds of zinc.

"Car makers will pay whatever they need to pay to get enough zinc to keep making cars," he said, and "an extra dollar on the zinc price will not reduce demand for cars."

Similarly, demand won't slow even if "couple of tens of bucks" is added to the cost of a new house because of the zinc used in galvanized steel for construction, he said.

 

The recent run in the zinc price has "demonstrated ... the critical shortage of metals supply coming from the mining industry," said Roulston. "There are many small new mines constantly being developed, but no big mines."

Meanwhile, "mines are constantly being shut down as the ore bodies are depleted, [so] the net result is that production has been flat at a time of rising demand," he said.

Overall, the zinc industry will "have a hard time at any price bringing on enough new supply to balance supply and demand in 2010 and thereafter," Meade said.

 

Eating up supply

Against that backdrop, warehouse stocks of zinc have been depleted.

On the LME, supplies were down to around 85,750 metric tons as of early December -- down from 450,000 a year ago and close to their lowest level since March 1991, according to Martin Hayes, a senior correspondent at London-based BaseMetals.com.

 

And inventories are "set to keep on falling," he said.

The supply deficit this year will likely be close to 300,000 metric tons, he said, with supply of 6.8 million metric tons not enough to satisfy 7.1 million metric tons of consumption.

 

- -

So what's the best way for a metals trader to invest in zinc?

"There is a futures market for zinc," said Roulston. But "you are not really 'investing'."

"The commodities markets are highly speculative and the realm of professional traders," he explained. "Neophytes in the commodities markets typically get eaten alive."

 

On the other hand, the higher zinc price is already factored into the share prices of producers, he said.

The "best way to invest in zinc, or any of the metals, is to look at the fundamental driver, which is the shortage of supply," he said.

And "the exploration and development companies that are advancing metals deposits offer exceptional investment potential, as their values will increase as the deposits are advanced toward production."

 

It's certainly timely that, on Tuesday, Australia's Zinifex (ZFEXF : zinifex ltd / Last: 14.25-0.25-1.72%) (AU:ZFX: news, chart, profile) and Belgium's Umicore (BE:000362637: news, chart, profile) agreed to combine their zinc smelting and alloys business, a deal that will create the world's largest zinc producer. See full story.

 

For now, most of the large producers such as Teck Cominco (TCK : teck cominco ltd cl b / Last: 78.68-2.17-2.68%]) produce many commodities, and are "therefore not pure plays," said Meade.

 

"Even the mid-tier, best zinc-leverage companies such as Lundin Mining (LMC : lundin mining corp com /Last: 37.21+0.46+1.25%) and Kagara Zinc (AU:KZL: news, chart, profile) have significant byproduct credits that make them less than a pure play," he said.

 

So "investors should look at the mid-tier producers that have abundant zinc production and are low-cost producers due to significant byproduct credits due to silver, lead, copper and gold credits," he said. Meade owns large positions in Pacific Resources and Yukon Zinc.

 

At the moment, these are already "highly valued," he warned. Take a close look at these to "see who has new production going on that is not factored into current valuation to get the extra zinc leverage."

 

Eric Coffin said he follows Lundin Mining as well as Teck Cominco. "I can't call [Teck Cominco stock] cheap, but its very well run, well diversified and has, arguably, the best zinc mine in the world -- Red Dog in Alaska," he said.

And for those traders who want a "more speculative type of situation," Coffin said he follows, and owns a position in, Selkirk Metals (CA:SLK: news, chart, profile) .

 

 

...more: http://www.marketwatch.com/News/Story/zinc...dist=TNMostRead

[drbubb]

canadian-quoted El nino (v.ELN) might be a way to play this.

 

I have been taking some profits on Acadian Gold (v.ADA), a five-bagger from where I bought it,

and considering investing a portion of the money in ELN.

 

ADA has a zinc deposit, and the stock has benefitted from the zinc price run-up

[Koufax]

For a truly speculative play, consider Canadian Zinc (CZN.TO), which has an abundant untapped zinc deposit, a shiny mill that has never been used, and a permitting problem that arises solely because its land is in the Yukon Territories, where aboriginal rights are just now getting sorted out.

[AceofKY]

For a truly speculative play, consider Canadian Zinc (CZN.TO), which has an abundant untapped zinc deposit, a shiny mill that has never been used, and a permitting problem that arises solely because its land is in the Yukon Territories, where aboriginal rights are just now getting sorted out.

 

Be careful with Canadian Zinc. I talked with management at PDAC. They don't own any shares (other than some that they trade with - one of the top dogs is a chartist) and aren't planning on buying any. They don't seem like serious miners to me. I suspect they're just in for the gamble and will sell the operation once it's fully permitted (if that ever happens).

 

Breakwater is a good, pure zinc play. Their shares have appreciated substantially, however, over the past year. According to my figures, they are close to fully valued now with a long term zinc price of $1/lb. A lot depends on cash costs going forward which have been very hard to get a handle on (I have $0.6/lb in my spreadsheet). Supposedly the contracts with the smelters are going to be renegotiated in favor of the miners which could improve this.

Good luck,

Ace

[drbubb]

ace,

 

on canadian zinc, i have traded in-and-out several times.

 

i would be amazed if john mcf. (the "chartist") owned no shares. i have met him many times, and believe him to have an eye for value, and he is also a good trader, using charts. czn is awaiting a resolution of its license issues. if and when those are resolved, it will have a huge run. but you may need to wait years, which is why i focus on short term trading of the stock

 

at the pdac, i spoke to him briefly, and tossed in a stink bid (below 60 cents) on the chart, which wasnt filled.

i think it is cheap, in the 50-60 cent range

 

three zinc-related stocks that i own now are:

 

acadian/ada : added some this week at $1.05 (with wts) in the bought deal

el nino / eln : bought some in the pp at $0.40, and some in the market

teck-cominco , i bought thru calls last week- back in profit now

[frizzers]

My zincs are:

 

Sabina (SBB - from 1.30) v.good company IMO

El Nino (from.40 in pp)

Zincox - which I think is an excellent company (AIM:ZOX) and one of my few AIM stocks

 

I also have some Zincore warrants

[Newbear]

I own some Farallon Resources (TSX:FAN)

 

Planning production of its Mexican zinc (also lead, silver and gold) deposit for July 2008 and buying the equipment now:

 

http://www.farallonresources.com

[AceofKY]

I'm thinking I might pick up some Tamerlane Ventures before the feasibility study comes out. Not sure if I should wait for a pullback or not...

[The Speculator]

There is a plethora of new zinc mines coming on line in the next 1-5 years, mostly small but will satisfy demand. The issue may lie in the refining, China is now, I believe, a net exporter of refined zinc, this for the first time in decades.

 

A mid term price of 3-3.50/lb can be sustaind but once the larger operations come on line I can see a retraction, this even if India's forcasted automotive industry demand kicks in.

 

Lead is the interesting one, due to the recycling factor a 10% increase in demand must be met by a 30% increase in supply.

[drbubb]

i know a company with a rich deposit:

 

11% lead, 7% zinc. but stuck in limbo

[frizzers]

i know a company with a rich deposit:

 

11% lead, 7% zinc. but stuck in limbo

 

Who?

[The Speculator]

i know a company with a rich deposit:

 

11% lead, 7% zinc. but stuck in limbo

nice Pb grade, any silver with it. Zn is ok too, which one??

[jerpy]

This thread seems out of kilter with events. See Griffin's woes.

 

http://www.griffinmining.com/gm_news.asp?date=20071126

 

Although they are confident the impact of China's off loading will be short term. The surplus has certainly hit prices in the second half of the year and shares.

[frizzers]

Yep, thread now well out of date, Rigger, but good find on Griffin. Zincox and Zincore have both taken massive hits recently.

 

If the Chinese change the tax law at the end of the year, zinc will be a buy - a huge buy - but they may not. If they don't the sector will continue to sell off, I expect, and then level off and a new buying opportunity will present. Eyes open.

[jerpy]

Yep, thread now well out of date, Rigger, but good find on Griffin. Zincox and Zincore have both taken massive hits recently.

 

If the Chinese change the tax law at the end of the year, zinc will be a buy - a huge buy - but they may not. If they don't the sector will continue to sell off, I expect, and then level off and a new buying opportunity will present. Eyes open.

 

Frizzers,

 

Been looking at Zincox myself, quite interested in them. But reading articles like the one attached concerns me. Predicting up to 45% decline in Zinc prices.

 

http://www.thehindubusinessline.com/2007/1...23150670700.htm

 

Just wondering if anyone has seen any comments on the Chinese situation. Keeping my eyes open, hence article, but not coming up with much other than hypothesis.

 

Riggers

[vssmnn]

The Return of Selwyn (FKA Pacifica)

 

Selwyn Resources Announces C$100 Million Joint Venture Transaction With Yunnan Chihong Zinc & Germanium Co. Ltd.

 

 

 

VANCOUVER, BRITISH COLUMBIA, Dec 14, 2009 (MARKETWIRE via COMTEX News Network) --

 

Selwyn Resources Ltd. (TSX VENTURE: SWN) ("Selwyn" or the "Company") announces that it has executed a binding Framework Agreement (the "Agreement") with Yunnan Chihong Zinc & Germanium Co. Ltd. ("Chihong"). The parties have agreed to form a Joint Venture Operating Company to finance the advancement of the Selwyn Project to bankable feasibility, and if warranted, to production.

 

Highlights of the transaction include:

 

1. Selwyn will transfer its mineral and other assets associated with the Selwyn Project to a new Canadian Joint Venture (JV) company.

 

2. A new company (Operating Co.) will be established, owned 50% by each of Selwyn and Chihong, to act as the operator to carryout the programs of the JV. The Board of Operating Co. will have equal representation from each of Selwyn and Chihong.

 

3. Chihong will deposit C$100 million in cash irrevocably to a bank account set up by the Operating Co., which funds will be used to fund programs of the JV. Chihong will earn a 50% interest in the JV by expending these funds on programs.