Betting on end to glut, miners hunt for new zinc deposits


* Top miners join search for new zinc projects

* Anticipating a supply deficit will soon replace glut

* Rising demand for rust-proof galvanised steel in China

* As ageing mines close and China demand climbs, zinc pricecould rise

By James Regan

SYDNEY, Nov 5 (Reuters) - A global hunt is on to find newdeposits of zinc as China buys more of the metal to rust-proofnew cars and coat steel used to build bridges and skyscrapers.

Multinationals such as Swiss-based Glencore Xstrata, Belgium's Nyrstar and China's MMG are funding new mines from Africa to the Yukon on expectationsthat an oversupply of zinc will turn into a deficit.

Along with mining veterans such as former Newmont head Pierre Lassonde, who holds a stake in Canada's Foran Mining, they are also investing just as ageing mines accountingfor a tenth of world consumption start to shut.

Even old workings are being rehabilitated, including silver-zinc mines built by Hunt brothers Nelson and William inCanada in the 1970s. The Texan duo famously hoarded silver tocorner the market and control global prices, only to go bustwhen silver prices crashed in 1980.

"After peddling the zinc story for so long I'm hopeful we'llsoon have our day in the sun," said Jonathan Downes, who ismanaging director of Ironbark Zinc Ltd.

The Australian prospector is digging a zinc mine inGreenland with help from international producers.

London Metal Exchange zinc prices have tumbled asmuch as 15 percent this year, one of the worst performers amongbase metals, but the outlook is turning, thanks in part to agrowing appetite for the metal among China's steel producers.

Within five years prices could almost double if the pace ofChinese demand growth continues.

Already the world's largest consumer, China still needs morezinc to lift rust-proofing of its steel closer to internationallevels. Typically, steel manufactured in China contains only aquarter of the zinc found in western steel.

Chinese car makers need to buy more steel coated with zinc,known as galvanising, to make their vehicles more rustresistant.

The issue of rust problems with Chinese-made cars washighlighted in a consumer programme by state broadcaster CCTV.

The programme drove home the idea that if Chinese automakerswant to effectively compete against the global manufacturersthey will have to use more zinc, said an auto-industry insider.

Headway is being made. Growth in China's automotive sector,the world's biggest, is already encouraging steelmakers to putmore zinc in their steel.

One of the latest developments has been the expansion of ajoint venture between Thyssenkrupp Steel and AnshanIron and Steel.

Under the plan announced in September, output of galvanisedsteel from the partnership in Liaoning Province will be boostedby incorporating two existing galvanising lines with a combinedcapacity of 800,000 tonnes a year at Anshan's main Chinese site.


China's refined zinc imports rose more than 10 percent inthe first nine months of 2013, trade data shows.

And the pending shut down of older zinc mines willcollectively eliminate 1.7 million tonnes of production, or 11percent of world consumption.

MMG's 500,000-tonnes-per-year Century mine in Australia, thebiggest of those set to close, runs out of ore in 2016.

Ireland's Lisheen mine, owned by Vedanta Resources and producing 170,000 tonnes a year, shuts in 2014.

Others including Anglo American of South Africa'sSkorpion mine and Rathdowney Resources' Pomorzany-Olkusz mine in Poland are also shutting inside threeyears.

"You've got a lot of monster mines that are departing fromthe trade," said UBS commodities analyst Tom Price.

"The sorts of operations that are going to replace them aresmall ones, so there is a risk that there could be a shortfallof mined zinc supply," Price said.

The International Lead and Zinc Study Group forecasts aworld awash with too much zinc through at least 2014, but seesthe global oversupply shrinking to 120,000 tonnes this year and115,000 tonnes in 2014 - below each of the previous four years.

That compares with a Reuters poll of analysts pointing to a110,000 tonne surplus in 2013, dropping to just 52,000 tonnes in2014.

BNP Paribas analyst Stephen Briggs believes zinc is alreadyin short supply and forecasts a 20,000 tonne deficit this yearand a 15,000 tonne deficit next year.

The last time zinc entered a supply deficit, its value morethan quadrupled. The price went from under $0.40/lb in 2003 toover $2/lb in 2006.

Wood Mackenzie predicts zinc will average more than $1.59/lbfrom 2016-18 versus $0.88/lb so far this year.

China produces more zinc than any other country and standsto benefit the most from any price uplift.


Ironbark's Downes will this week accompany Greenland'sminister for mines to a business conference in China, where hehopes to encourage more foreign zinc mining in Greenland.

China Nonferrous has already agreed to engineer andconstruct Ironbark's mine and to arrange funding from banks inChina. Glencore Xstrata meanwhile is providing Ironbark with a$50 million convertible note.

China Nonferrous has also agreed to buy a 50 percent stakein a joint venture to develop the Ozernoye deposit in Russia'sRepublic of Buryatia - one of the world's largest by zincreserves - and build an ore mining and processing plant.

South African Mike Oppenheimer favours Burkina Faso.Oppenheimer is acting chief executive of Blackthorn Resources, which this month made its first shipment vianeighbouring Ivory Coast. It is Burkina Faso's first zinc mine.

Glencore Xstrata owns 62.2 percent of Blackthorn and hasagreed to buy all the zinc the company can mine.

In Canada's Northwest Territories, Canadian Zinc wants to rehabilitate ground worked by the Hunt brothers.Costing $185 million, the plan is to produce about 76 millionpounds of zinc annually, along with silver and lead.

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