Zinc - Demand Exceeding Supply!Zinc has had just an amazing run in its own bull market. From its 2003 low of $0.34 per pound, zinc has climbed nearly 500% to $1.95 per pound close on Nov 3, 2006 - a new all-time nominal high.
Uses of Zinc
The largest use of zinc is for the galvanization of steel. Nearly half of the world's annual consumption of over nine million tonnes is used to protect about 100 million tonnes of steel.
The second largest use of zinc is as an alloy - brass is around 30% Zn. The remaining zinc consumption is for making paint, chemicals, agricultural applications, household appliances and fittings, in the manufacture of electrical components, in the rubber industry, TV screens, fluorescent lights and for dry cell batteries. Zinc's many different applications rank it as the 4th most commonly used metal behind iron, aluminium and copper.
Zinc Production
Global production of zinc has increased by 42% since 1995. Zinc metal output is forecasted to increase by 4.9% next year, but many industry experts expect a supply deficit.
The largest producing zinc mine in the world is the Red Dog Mine located in Northwest Arctic Borough, Alaska and operated by Teck-Cominco. This massive mine produces over 600,000 metric tons of zinc concentrate per year. However, due to its isolated location, much of the zinc is stored onsite till the sea becomes passable and can be transported to its buyers in Canada, Europe and Asia. Typically concentrate is stockpiled at the port facility from November till June.
Zinc stores at the London Metal Exchange (LME) were already dropping fast through the summer! No zinc concentrate from the world's largest zinc mine over the next 7-8 months may exacerbate the current zinc supply deficit.
Zinc Demand
The LME is the largest non-ferrous metals exchange in the world. Physical storage of zinc is important for the exchange to provide daily prices, futures and traded-options contracts. Without any physical storage, the speculative demand for zinc will explode!
The largest consumer of zinc, China, accounts for 30% of global demand, more than three times that of the next closest country, the United States.
The International Lead and Zinc Study Group (ILZSG) expects global zinc consumption to increase by 3.9% this year and is estimates 2007 demand to rise by another 2.6%. China is by far the world's largest zinc consumer as it accounts for 30% of total global consumption, three times that of the next closest country, the United States. The ILZSG expects China's zinc demand to increase by 6.9% in 2007.
Zinc Exploration
The recent run-up in the price of zinc due to a supply deficit has mining companies scrambling to increase production and find new deposits. Two Canadian mining companies are close to achieving production.
Canadian Zinc
A complete scooping study was conducted on Canadian Zinc's Prairie Creek zinc/silver/lead mine located in the southern Mackenzie Mountains of the Northwest Territories. It determined that the existing mine, 1000 tonne-per-day mill and supporting facilities could be put into operation within six months of receiving the required permits at a cost of $21.7 million if the mine operated for eight months per year using a winter road. This figure would rise to $40.5 million if an all-weather access road was constructed from the mine site to the Liard Highway.
The Prairie Creek Property hosts a major mineral deposit containing a historically estimated Measured & Indicated resource of 3.6 million tonnes grading 11.8% zinc; 9.7% lead; 0.3% copper and 141.5 grams silver per tonne and an Inferred resource of 8.3 million tonnes grading 12.8% zinc; 10.5% lead and 0.5% copper and 169.2 grams silver per tonne, with significant exploration potential as indicated by the latest drilling reports.
The deposit contains an estimated, in situ 3 billion pounds of zinc, 2.2 billion pounds of lead and approximately 70 million ounces of silver.
Yukon Zinc
The Measured & Indicated mineral resource for Yukon Zinc's 100% owned Wolverine deposit located in the southeast Yukon is 1.2 billion pounds of zinc with significant silver/copper/gold/lead credits bringing the cash cost to $0.24 per pound.
A recently completed feasibility study calculates capital costs before contingency, owner's costs and working capital at $155.7 million. It forecasts metal production in the first three years to be 33,342 tonnes of zinc, 3,577 tonnes of copper, 3,399 tonnes of lead, 3.81 million ounces of silver and 16,043 ounces of gold. The estimated mine life is ten years with a possible four-year extension.
A news release in September reported that the Wolverine Project is not likely to cause significant adverse environmental effects as determined by the Yukon Executive Council Office and Energy, Mines and Resources. This represents a major hurdle completed with any new mining development.
Yukon Zinc is advancing the Wolverine Project towards securing project financing and a production decision in early 2007.