By Daniella D’Alimonte – Exclusive to ZincInvestingNews.com

Some of China’s small and medium sized zinc smelters faced dissapointment this week when larger smelters announced they would not be supporting production cut-backs. This decision came after the larger smelters, such as Zhuzhou Smelter Group Ltd., a subsidary of Hunan Nonferrous Metals Corp. Huludao Zinc Industry and Shaoguan smelter, owned by Shenzhen Zhongjin Lingnan Nonfemet, met for a two-day industry meeting.

A number of small and medium smelters had decided July 12 to make minor production cuts during the coming summer months. It was an attempt to lower the current oversupply that is driving prices down. This decision was met with mixed reaction by industry leaders and analysts.

Reuters reported Bonnie Liu, analyst at Macquarie Bank, as noting while the cutbacks won’t be overly large, they will to some degree help sentiment on the recently battered market. Reuters also reported criticism from industry officials who said ‘such a deal created an impression of market speculation.’

Zazu Metals Corp. (TSX: ZAZ) has climbed a substantial 18.2 per cent to US$0.65.

Teck Cominco Ltd. (TSX: TCK.A, TCK.B), one of Canada’s top diversified mining companies, has fallen nearly six per cent. This is the furthest it has fallen in two weeks. The company announced it will be halting production at its Lennard Shelf Pillara zinc mine in Western Australia. This mine is a joint venture with Switzerland’s Xtrata Zinc. Reasons for the closure include the appreciation of the Australian dollar, the current low price of zinc and the high energy and labour costs associated with running the mine. It is no longer economical to keep it running.

Lennard Shelf never did reach its predicted annual output of 75,000 tonnes. However, production did climb to 42,000 tonnes since opening in the second quarter of 2007.

HudBay Minerals Inc. (TSX: HBM) announced on July 18 plans to close its Balmot mine located in New York State. Down US$0.12 to US$11.00 per share, HudBay has fallen around 45 per cent since the beginning of May.

The closure of these mines, along with the expected others to come, could help put a dent in the current oversupply.

Donald Lindsay, chief executive officer for Teck Cominco Ltd., said in a May 23 interview that the falling prices of zinc would force companies to stop production. Global supplies would then be cut within 18 months, he predicted.

On the alternative, closures could also suggest that companies are taking a bearish outlook for the long-term zinc market. It is often more economical for a mine, even in a time of market hardship, to remain in production. Shut-downs can come with a high price tag because of holding costs, environmental expenses and worker severence pay, noted analyst Kerry Smith in a recent interview with Platts Metals Daily.com.

Mag Silver Corp. (TSX: MAG) recently announced further drilling results on behalf of Minera Juanicipio SA, its joint venture with Fresnillo Plc. The Valdecanas Vein for Hole GE, which was not included in earlier estimates, intersects two veins. The project predicts high grade gold, silver, lead and zinc.

Hole GE is one of the deepest in the area. It is part of the 25,000 metre drill program being carried out on the Juanicipio property in 2008.

Comment

Tweet