Senior zinc mining executives have learnt to take a measured, even a philosophical view when it comes to the zinc price. Steve Williams, CEO of TSX-listed Pasinex Resources, told Mining Journal: “It’s not a metal that can go crazy, it’s not gold, it’s not copper. Galvanising steel is pervasive all around the world; you can’t afford to put a very expensive chrome or nickel on steel, so it has to be relatively cheap.”
There was a sort of cap on the zinc price, said Williams, because everyone knew if it went too high, it opened the door to substitution, by aluminium, for example.
In other words, zinc needs to be an affordable cost-addition metal.
That’s not to say executives weren’t popping a few corks in February 2018 when the price hit a monthly average of US$3,533/t as a couple of major mines stopped producing. But by December of the same year, the price was off a thousand bucks, as the trade war and worries about economic growth put a spanner in the works. Today, zinc is trading at around $2,700/t.
Stock levels can have an effect, but not always. Today, benchmark LME stocks are at 100,000t. With daily global consumption at 40,000t that’s just 2.5 days’ supply. But the price hasn’t gone through the roof – even though historically there has been a correlation between stock levels and price. (There are also stocks held in warehouses in Shanghai that could have a bearing.)
Mark Allen, principal associate geologist at Australian consultancy CSA Global, said: “Maybe, like [anthropogenic] climate change and the rise of sea levels, markets don’t care about events which fall beyond their attention span. The deficit story is over years or tens of years.”
Sometimes, though, it’s worth standing back from the price. After all, we’re used to seeing the zinc price jerk around, only to settle back to where it started.
As with swathes of the mining industry, it’s as much about project economics. Allen’s assessment was that good projects are ones that can tout an average grade of between 5%-10% zinc, preferably be openpit, and in a reasonable jurisdiction. Also, largish in scale to give a decent mine life.
Small meant 10,000t while at the other end of the spectrum only three producers account for 100,000 tonnes per annum-plus: Century (New Century Resources, Queensland), Red Dog (Teck Resources, Alaska) and Rampura Agucha (Vedanta, India).
The zinc market isn’t what it was. The average zinc grade in 2000 was 5%, today it’s more like 2%, said Allen.
That was because an increasing amount of zinc was being produced as a by-product which meant lower grades – an example was a mine such as Teck’s Antamina in Peru (copper/zinc), he said. The average industry grade had gone down as reporting had got better which meant tallies of contained zinc had rocketed, but much of it was low-grade. A lot of the easy-to-get stuff had been mined.
Williams at Pasinex doesn’t worry too much about the zinc price as grades at 50%-owned Pinargozu underground zinc mine in southern Turkey are about as good as it gets.
Williams said: “We have two products, mostly an oxide, which has been running 30% to 32% zinc, also a sulphide that is 45% to 50%. Better grades mean better prices so you can ride the ups and downs of the price.”
Pasinex’s margin has been 50% to 60% post-tax as cash-generation is strong. It helped that Pasinex sold direct shipping ore, “so no processing, treatment costs, etc”, said Williams.
Lawrence Reid at AIM-listed Europa Metals was also relaxed about the zinc price. “I have always said don’t buy into this stock just because you see the zinc price going up. I think with us it’s about credits and grade, you have to look at the totality of the economics.”
Europa boasts silver and lead, as well as zinc, and has unveiled a JORC inferred resource for its Spanish Toral asset of 16Mt of 6.9% zinc equivalent (including lead credits) and 25 grams per tonne silver.
Even at the current price “there is quite a bit of fat in this thing”, said Smart. He added: “We are in a perfect state. Our zinc is basically subsidised by copper. The copper almost pays for the zinc production. We are in the lowest decile of zinc production costs, net of copper credits.”
Orion is well-advanced on finance discussions with debt and equity providers.
The company, said Smart, was well supported by development finance institutions in South Africa, especially the IDC, and had eight commercial banks on side.
Smart outlined some growth drivers: “Chinese goods and buildings have been produced with sub-standard galvanising, so they will need to be replaced. They are rusting, so there is massive replacement growth to come.”
But zinc miners’ share prices are on the floor. They have been flattened by trade wars and fears about global economic growth. “Right now, when there’s good news it tends to become a liquidity event [a chance to take profits on the stock] rather than a growth portfolio event,” said Smart.
Allen highlighted Kipushi in DRC (Ivanhoe Mines), which was a reasonable size. “While everyone else is scratching around for 5% or 10% zinc, Kipushi is at 25%-to-30%,” he said.
“There are some groundwater issues [at Kipushi], it’s in the DRC, and you’ve got to get the stuff to the nearest port – Durban – so high transport costs. Also, it’s quite deep, but I have no doubt it will be mined.”
He also flagged up Reward, the large-scale zinc-lead project owned by Teck in Australia’s Northern Territory.
In Canada there was Selwyn, a proposed zinc-lead mine in eastern Yukon. The project is one of the largest undeveloped zinc-lead deposits in the world, owned by Selwyn Chihong, headquartered in Vancouver but with a Chinese parent listed in Shanghai.
What about the cost dynamics of zinc producers? C1 at 60c/lb was extremely good, said Allen.
Jonathan Downes, CEO at ASX-listed Ironbark Zinc, told Mining Journal a feasibility study had indicated AISC at the group’s flagship Citronen project in Greenland was 73c/lb – good by any standard.
Downes said: “We will be mining 3.3 billion tonnes per annum. In the first five years it will be about 7% zinc, falling off to around 5%. We have a 14-year mine life and should produce roughly 200,000t of zinc metal each year.” Production, subject to project financing, kicks off in 2021. He feels confident.
On price he said, “if you pull back a 10-year chart and look at where the zinc price is, it’s on- trend. It looks like near-normal”.
“We are a very profitable operation at these prices and with these grades.”
Ironbark’s share price catalysts will be the closing a $400 million financing package expected this year. The company is looking for a potential partner to help out.
A spokesman for Vedanta’s offshoot Hindustan Zinc told Mining Journal: “We expect the refined metal market to remain in deficit this year and balance out towards the end of 2020 at the earliest.
“Metal stocks are presently at record lows which supports zinc prices and we expect this scenario to continue in the foreseeable future. Zinc supply is growing at a slower than expected pace, hence also being supportive for the price [on a two to three-year view].”
Williams at Pasinex said: “I am not overly bullish on the price. But I don’t think it will go much lower. I think we are heading towards $1.10/lb, or $1.20/lb. We can certainly make money on that.”
But the investment equity picture looked bleak, he said, with money having “fled” from junior mining and investment into cannabis and technology. “It’s really looking tough out there from a market perspective whether you are a producer or junior, you face overall negative sentiment.”
Nevertheless, Allen said “the fundamentals” supported an optimistic view on price.
“We see a supply gap developing over the next 10 years between a steady increase in demand and lack of upcoming development projects,” he said.
The challenge for the zinc industry was falling resource and head grade, he said.
“The top 30 pre-production zinc resources have a total of 175Mt of contained zinc. All are challenged by low grade, remote location or depth.
“Production from many of these projects will depend on a sustained high zinc price,” Allen said.
SOURCE: MINING JOURNAL
DATE: MAY 28, 2019