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Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

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The Zinc Crunch Has Finally Come

Very interesting comments on the zinc market the last few days from a major producer that says it is struggling to find projects for the metal — even as a price surge looms.

That’s China’s MMG. Operator of a number of base metals mines in Australia and Peru — and a firm that’s now aggressively seeking to expand its global portfolio in zinc.

MMG’s CEO Andrew Michelmore told an investor conference call Thursday that his management team thinks now is the time to be betting on zinc. A sentiment that he summed up simply by saying, “The crunch has finally come.”

Michelmore went on to note that MMG is scouring the land for zinc projects, especially in one part of the world: Peru. Where the company already has a strong presence, thanks to the recent commissioning of the Las Bambas copper mega-mine.

MMG also sees Peru as a great place to develop zinc projects, with Michelmore saying that big deposits already identified in the country demonstrate significant potential. Something MMG says is very hard to find in other parts of the planet.

“There’s so little zinc around,” Michelmore told conference call attendees. “We are very positive about the zinc industry and we’re keen to be involved with more of it, but it’s challenging.”

The recent price action in zinc supports this bullish sentiment. With the metal having risen nearly 45 percent so far in 2016 — largely driven by a number of big mine closures globally, including MMG’s own Century operation in Australia.

That kind of appreciation should indeed mean miners jumping into projects. But there’s been surprisingly little action in this space — due to the lack of good projects that MMG’s management points out. Related: Expert Commentary: Don’t Be Fooled By U.S. ‘Production Gains’

A look at zinc’s global production profile reveals there aren’t a lot of options for this metal. As the chart below shows, after top producer China, there are really only two big zinc nations — Australia and MMG’s top choice Peru.

(Click to enlarge)

Source: U.S. Geological Survey

That supply tightness is going to mean that quality zinc projects could become a very hot item over the coming months and years. One dark horse here — watch for Myanmar, which has substantial known deposits and past-producing mines in this rare space.

Here’s to if you only buy one metal this year,

By Dave Forest

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