Zinc: Bull or Bear?

By Daniella D’Alimonte – Exclusive to Zinc Investing News

The price of zinc closed at just over US $2,471 per tonne on February 4. This is an over US $250 increase from the previous week. Zinc

prices have risen steadily after having fallen to a 30-day low of around US $2218 per tonne on January 25.

Bullish analysts are predicting a favourable year for zinc. In fact, some are predicting a rising trend for base metals in general. With forecasts for an increase in global demand and improvements in manufacturing of zinc,  it is expected that support for this commodity will continue to grow, and its price will continue to gain strength.

Bearish analysts are taking a completely different approach. In the middle of January 2011, Reuters was already reporting anticipations of an annual surplus in the global zinc market of around 750,000 tonnes. This would be a huge increase from the 223,000 tonne surplus that was reported for the first eleven months of 2010 by the International Lead and Zinc study group.

Despite the reported over-supply, Peru is planning a substantial increase in zinc production and export. This is part of a national government strategy to exploit its resource potential. Volcan, one of the country’s largest zinc producers, plans to grow 5 percent annually, and increase production by over 100,000 tonnes over the next three years.

Peru reported a 34.7 percent growth in mineral exports for 2010, driven by increased sales of iron, zinc, copper, lead, tin and gold. The country also plans to boost silver production and exportation in the coming years.

Several Canadian mining companies are also choosing to invest in zinc exploration.

British Columbia’s Silvercorp Metals Inc. (TSE:SVM,NYSE:SVM) just announced the Chinese government has granted it approval to acquire 70 percent equity interest in Yunxiang Mining Co. Ltd. Yunxiang is a private mining company in Hunan Province, China, with primary assets in a gold, silver and zinc mine. A 500,000 metre drilling project has been planned.

Also out of British Columbia, both Alexco Resource Corp. (TSE:AXR) and Selwyn Resources Ltd. (CVE:SWN) announced positive drilling results from the Yukon in February.

Alexco’s efforts at the Keno Hill’s Silver District confirmed the presence of high-grade zinc, silver and lead, according to its report released February 2. The company also stated it has extended the zone of significant indium-bearing zinc-silver and silver-zinc mineralization by an additional 100 metres.

Selwyn confirmed deposits of zinc and lead at its drilling project in Eastern Yukon. The company reported mineral resource for the XY Central deposit is 10,738,000 tonnes grading over ten percent zinc, and over 4 percent lead. The company also reported an inferred mineral resource of 2,849,000 tonnes grading nearly eleven percent zinc and over four percent lead.

Dia Bras (CVE:DIB), a Toronto-based exploration company, also reported drilling results at the beginning of February. The company’s current drilling program at its Las Coloradas project in the Melchor Ocampo mineral district, Mexico, has revealed deposits of silver, lead and zinc, according to the report. Dia Bras provides most of Mexico’s zinc and lead, which has placed the country as the fifth largest global producer.

Several mining companies however, are experiencing less than positive results with zinc.

Korea Zinc Co., the largest producer of refined zinc, recently announced disappointing fourth-quarter earnings. The company took a 6.5 percent drop in its fourth quarter profit, and a declined net income of US $102M in the last three months of 2010.

The world’s second largest zinc mine is not fairing so well either. Australia’s Century zinc mine is set to close around 2015, as exploration efforts over the last year have been unsuccessful. Owner Hong Kong-listed Minmetals Resources Ltd. told Reuters it hopes to have the neighbouring Dugald River zinc project in production by 2014. However, Dugald River will have a production rate of less than half of that of the Century mine, which is usually about 500,000 tonnes per anum.

Century was closed temporarily this week as category five cyclone, Yasi, neared the Australian coast where the mine is located. Production was resumed by Friday.

Zinc made its way into technology news this week. A technique know as vacuum metal deposition (VMD), which utilizes zinc and gold to lift fingerprints from surfaces, is being further examined. Researchers from Scotland’s University of Abertay, Dundee, and the Scottish Police Services Authority (SPSA) are attempting to use this technique to obtain prints from soft surfaces, such as clothing. This would be a definite asset to forensic scientists. The technique is currently being used to gather evidence from smooth surfaces, such as glass and plastic.