“We continue to believe that zinc will be the next big base metals play for investors, with prices climbing to US$1.30 to US$1.40 a pound in 2015,’’ writes Scotiabank vice-president economics Patricia Mohr in her latest Commodity Price Index report.
According to the report, the reasons for this are two-fold:
- Gains in world mine production over the next four to five years will likely fall behind global demand growth (4.7% a year from 2012 to 2017), given unusually high depletion at major mines in the face of tighter capital availability for new mine development; Century in Australia will close one year early in mid-2015 (515,000 tonnes) and Lisheen will shut in 2015 (172,000 tonnes), following closures in 2013 at Brunsick (190,000 tonnes) and Perseverance (125,000 tonnes) in Canada.
- The major end uses of primary zinc in galvanized steel are picking up – particularly in motor vehicle and construction. World vehicle sales reached a record high in 2013 of more than 81 million units and an even bigger record is forecast for 2014 at almost 86 million (plus 5%). China’s passenger car and cross-over utility sales jumped by more than 20%, surpassing U.S. sales last year, and should advance another 12.5% in 2014. U.S. non-residential construction, a sector which has struggled since 2008, also appears to be turning around (especially in office buildings). A broader recovery in non-residential construction is expected across the G7 in the second half of the decade.
Mohr notes in her report that the price of zinc strengthened to US$0.89 cents in December and moved up in January to US$0.93.
Her rosy outlook is good news for zinc levered metal producers including
Trevali Mining Corp. (
TSX: T.TV,
Stock Forum).
“Trevali provides stand-out exposure to zinc as it now has moved into production and operates a producing asset in Peru while concurrently progressing a second operation towards production this year in New Brunswick,’’ writes Dundee Capital Markets analyst David Charles in a research report.
“The company is the only producing pure-play zinc story on the TSX and, moreover, it is undervalued compared to its base metals producing peers,’’ said Charles.
The Dundee analyst has assigned a buy rating to the stock and a $1.50 target price.
Trevali shares were up 2% to $1 on Wednesday, leaving a market cap of $279.3 million, based on 279.3 million shares outstanding. The 52-week range is $1.10 and 49 cents.
Other zinc-levered producers cited by Charles in his report include
HudBay Minerals Inc. (
TSX: T.HBM,
Stock Forum)
Lundin Mining Corp. (
TSX: T.LUN,
Stock Forum),
Nevsun Resources Ltd. (
TSX: T.NSU,
Stock Forum) and
Teck Resources Ltd. (
TSX: T.TCK.B,
Stock Forum).
More speculative names include
Canadian Zinc Corp. (
TSX: T.CZN,
Stock Forum),
Rathdowney Resources Ltd. (
TSX: V.RTH,
Stock Forum),
Tirex Resources Ltd. (
TSX: V.TXX,
Stock Forum),
TriAusMin Ltd. (
TSX: T.TOR,
Stock Forum), and
Zazu Metals Corp. (
TSX: T.ZAZ,
Stock Forum).
Disclosure: Trevali Mining Corp. is a Stockhouse client, but the company has not paid for this content.