Opportunities In The Zinc Sector

by: Stephanie Collins

Zinc climbed to its highest in a year on last week after factory growth improved in December both in China and the United States, brightening the demand outlook for Zinc and other base metals.

Zinc hit the highest since Feb. 2, 2012, at $2,190 a ton last week and chasing gains in copper which rallied to four-month highs last week in London and Shanghai. Zinc is currently selling above $1,980 a ton, having risen steadily from the $1,600 level in the fall of 2012.

US manufacturing growth quickened in January and hiring across the economy increased in late 2012, while Chinese factories extended a modest rebound, suggesting a global economic recovery remains on track. As is the case for many base metals these days, concerns about US fiscal issues are weighing on the zinc and copper markets but there may be some reasons to believe that a turnaround is imminent.

The main reason is the upcoming closure of some large zinc mines such as Lundin Mining's Galmoy Mine (OTCPK:LUNMF), and Xstrata Zinc's (OTC:XSRAF) Brunswick Mine just to name a few. These closures will have an impact on the supply of zinc in the upcoming years thus potentially putting positive pressure on demand and resulting price. Up until late fall 2012 many heavyweights in the zinc markets shared the opinion of the surplus of zinc would satisfy demand but that opinion is beginning to change.

According to Don Lindsay, president and CEO of Teck Resources (TCK), which operates the world's biggest zinc mine in Alaska, in an interview last year:

Our strategy at Teck on zinc the last five years has been, 'Read my lips, no new zinc,' because zinc has been in surplus...

However, we finally changed our stance on that in November, because we finally see that zinc really is going to switch from surplus to deficit. We don't know exactly when. It certainly isn't this year. But we do see it's going to happen.

According to US Geological Survey numbers released last month, China remained the world's largest zinc producer in 2012, putting out 4.6 million MT. Australia and Peru round out the top three, having respectively produced 1.49 million MT and 1.27 million MT.

Australia holds the world's largest assessed zinc reserves, at 70 million MT. Global refined zinc production declined by 2% in 2012, to 12.9 million tons, according to the International Lead and Zinc Study Group (ILZSG). World consumption also dropped to 12.7 million tons, creating a market surplus of 153,000 tons during the year. The biggest drag on the market was Europe, where consumption fell by 5%. A larger surplus is forecast for 2013.

Global zinc mine production was up 7.1 percent during the first 11 months of 2012, according to other data from the ILZSG. Mine output totaled 12.6 million MT during this period. The increase in zinc mining was largely driven by China, which grew its production by 20.2% year-on-year.

If Zinc demand does increase as many experts believe and supply does decrease with the closure of many aging mines that have been depleted over the years, I believe that opportunity lies ahead for some major and junior players that are positioned in the sector.

Zinc Companies To Watch in Q1/Q2 of 2013

Teck Resources, LTD. Teck is Canada's largest diversified resource company, committed to responsible mining and mineral development with major business units focused on copper. steelmaking coal, zinc and energy. Headquartered in Vancouver, over 50% of Teck's business results from it's copper and zinc operations with the remaining business stemming primarily from coal.

According to the Teck Resources unaudited 2012 Q4 Report released on February 7, 2013, they produced a record 373,000 tons of copper including 103,000 tons in Q4 alone. With copper operations in Chile, Peru and Canada, Teck is actively exploring and assessing development opportunities for both new copper and zinc deposits in the US, Canada, Chile, Mexico, Namibia, Peru, Turkey and Australia. One of the most impressive line items from their recent Q4 Report is their $2.9 billion cash position.

Chesapeake Gold (OTCQX:CHPGF) The company released positive results from a pre-feasibility study on its Metates gold silver project, which is located in Durango State, Mexico. The study shows that the deposit contains 2.1 million tons of zinc in addition to precious metals and over a 25-year mine life. The project is expected to produce 95,000 tons of zinc yearly.

Lundin Mining (OTCPK:LUNMF) Zinc output ramped up during the fourth quarter of 2012 at the company's Neves-Corvo mine in Portugal. Zinc output from Neves-Corvo totaled just over 30,000 MT of contained metal in 2012, coming in at the high end of company guidance, which had forecast 25,000 to 30,000 MT production. Guidance for 2013 is up, at 45,000 to 50,000 MT.

Silver Standard Resources (NASDAQ:SSRI) The company announced that it produced 5,600 tons of zinc in 2012. The company's Pirquitas mine in Argentina produces zinc as by-product from silver ore at a grade of approximately 0.65%. Silver Standard is targeting increased production of 10,000 tons of zinc in 2013.

Canadian Zinc Corporation (OTCQB:CZICF) They announced a few weeks ago that they received the water licenses and land-use permits for its Prairie Creek mine in the Northwest Territories. The approvals come on the heels of several technical sessions with the government and First Nations officials in late 2012.

Zinco do Brasil, Inc. (OTCPK:ZNBR) This company is a Brazilian-American junior mining company with its sole focus on exploring, developing and operating world-class mining assets in Brazil. Although new to the space, what is most interesting about this company is the assembly of a world class Board of Directors which invested their own money in the company and generated interest by investors such as Frost Gamma Corp (Dr. Phillip Frost). Through its fully-owned subsidiary Zinco do Brasil Mineracao Ltda., the Company owns 30 mineral rights for a total area of 44,665 hectares in the Brazilian state of Minas Gerais.

Silver Bull Resources Inc. (NYSEMKT:SVBL) The company is focused on its flagship Sierra Mojada project located in a world class mining jurisdiction in Coahuila State, Mexico. The project currently has a NI 43-101 resource of 72.1M ounces silver and 997M pounds zinc in the measured & indicated categories and 10.4M ounces silver and 108M pounds in the inferred category. The project also contains a significant zinc exploration target situated below the silver resource of between 4Mt-6Mt zinc grading between 8%-8.6%.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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