Zinc is the fourth most mined mineral resource in the world. Zinc is mainly used for galvanising – cars, construction, appliances and electronics. Therefore as a base metal it is a strong indicator of economic growth. As the world economy grows and an ever increasing middle-class, so does the demand for zinc. As both population and income grows in the emerging economies the long term fundamentals for zinc remain good.
However, poor economic returns in the 1980’s and 1990’s resulted in very little exploration over the past 30 years as a result mines are running out with the expectation that 1 million tonnes of supply per annum will be lost from the middle of the decade. Therefore increasing demand and an expected fall off in zinc supply will keep prices firm in the medium to long term.
Irish zinc has always been much sought after with two of the world’s largest zinc mines, Tara and Lisheen operating in the country. Both the grade and quality of Irish zinc is extremely high in comparison too many other zinc prospective areas. However, costs are high in most instances Irish mines need a breakeven price of $1,200 per tonne. As prices remain above $1,800 per tonne Irish mines remain profitable.
Why zinc? We need to take a look at what is happening in China.
With one of the world’s largest populations, and an expected market growth of 6% in 2017, China’s passive use of zinc is staggering; spending by Chinese consumers on refrigerators, cars, and laptop computers has caused a surge in demand for zinc, creating a production shortfall that is the largest for that particular metal in almost 10 years. Moreover, according to Reuters, China’s economy grew by a solid 6.8 percent in the first quarter of 2017, the same pace as the previous quarter, due primarily to sustained government infrastructure spending and housing market starts. All that steel need to be galvanized, and what is the primary component of rust inhibitors…? Zinc.
China is not the only consumer of zinc and zinc related products. India too has significant demand for the element. The domestic Indian Zinc industry is completely privatized, and there is an assumption that zinc demand will grow in that country by 10% until 2020, based again on infrastructure and consumer products demand.
Worldwide demand for zinc rose 3.5% in 2016, and heading into the second quarter of 2017 the metal is seeing a bullish trend. Unlike gold and silver, zinc is not considered a crisis asset, but rather benefits from traditional industrial commodity supply and demand. Geopolitical uncertainty may also contribute to a brighter spotlight on the zinc market as investors consider a breadth of commodities in their portfolios. Analysts are expecting a decline in global zinc supplies in the coming years.
Goldman Sachs views zinc as a bullish metal. “Zinc is the most exposed base metal to Chinese infrastructure” say Goldman’s analysts. The company forecast a 114,000 ton shortage of zinc in 2016, which it expects to increase to 360,000 tons in 2017. Goldman expects zinc could hit a $2,500 per metric ton price in 6 months. Looking at Q1’17 market performance, base metals were all over the place, but zinc spiked 20%, slightly ahead of gold at 15.9%. While gold’s performance may have been a reaction to concerns about the Administration in Washington and some profit taking, the performance of zinc was better than expected. Of all major metals, zinc is the metal most closely connected to infrastructure growth and spending, which will continue to put pressure on zinc mining and production into the foreseeable future.
Sixty years ago Ireland had no mining industry and seemingly no prospects but a few maverick pioneers led by Pat Hughes, a returned emigrant found zinc in Galway. This led to a boom in exploration and further discoveries.162 Clontarf Road was built in the late 1960s to house the headquarters of Tynagh, Tara and Gortdrum – three large base metal discoveries, all part of the Pat Hughes group of companies. As a result Ireland is known as a world class zinc province – highly prospective for zinc discoveries. In 2007 Ireland produced 38% of Western Europe’s zinc and 25% of its lead. From the discovery of the Tynagh mine near Loughrea in the early 1960s to the present when all of the world’s leading zinc miners are actively exploring, Ireland has proven to be the most prospective country in the world in which to discover zinc. A wide band of limestone stretches from the Northeast around Dundalk through the midlands down to Clare/Limerick and Kerry. On the borders of this band some of the biggest and best zinc mines have been found.
Tara, at Navan, now owned by Boliden, which has been producing for 35 years, was for a long time the largest zinc mine in the world and is now the 6th largest. Lisheen, in Tipperary is the 12th largest zinc mine. In their day, the Tynagh mine in Galway and the Silvermines mine, in Tipperary, were among Europe’s biggest. There is every chance of the trend continuing with 3 significant zinc discoveries currently being explored – the Limerick Pallas Green discovery owned by Glencore, where 28 million tonnes have so far been outlined, the Stonepark discovery beside Pallas Green, owned by Connemara and Teck, where upwards of 5 million tonnes are outlined and the earlier stage Kilbricken discovery of Lundin Mining in Clare. Over 30 companies are actively exploring in Ireland including a cluster of Irish exploration companies. Numerous large publicly listed mining companies owe their origins to Irish zinc: Northgate, the original Tara and Kenmare to name but a few. Irishmen who learned their trade in Irish mining have founded dozens of exploration companies in Canada, Australia and the UK including, Connemara, Minco, Alba, Ormonde and Rathdowney.
The early investors in Tara and Northgate saw huge returns. RecentlyMinco sold their Pallas Green interests for $20m while earlier explorers such asIvernia with a stake in Lisheen, Conroy/Arcon owning Galmoy and Belmore in Clare sold out to multinationals. Currently Irish zinc explorers are very active. Connemara is busy with Teck in Limerick and Oldcastle.IMC is drilling in Tipperary. Rathdowney, Canadian listed but Irish, has ground in the Midlands recently joint ventured with the giant Antofagasta, while Alba has a Limerick joint venture with Teck.Unicorn and Midas are two other private Irish companies with licences. All of the explorers are looking for the same thing – a big high grade deposit. The Glencore discovery in Limerick is examining the feasibility of a 6,000 tonne a day world class mine costing $500m and employing hundreds. Commercial discoveries are needed. Lisheen has only 2/3 years left and the life of Tara is less than 10 years but the prospects are good.
Raw zinc prices have remained strong.. The current prices are profitable for the main Irish zinc producers. The long term fundamentals for zinc remain strong with year on year growth expected to be in the region of 4% due to demand from the BRICs. Sluggish supply is expected towards the middle of the decade due to the closure of several large mines. As a result, almost 1 million tons of supply is expected to be lost to the system in the coming years. Supply-Demand gaps are expected in 2015 and will last until 2020. As a result prices are expected to remain firm over the long term.