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Zinc market could be facing concentrate supply deficit: Investec

http://www.chemnet.com   Jul 30,2015 Platts
The zinc market could run into a concentrate shortfall in the coming months, leading to upward pressure on prices, Investec said Wednesday.

"We see the zinc market as one of the few bright spots in the metals market right now given the natural attrition from old mines closing down," Investec said in a research note, commenting on the decision by Australia's MMG to push ahead with its Dugald River mine project.

"The development of Dugald River has long been expected but a considerable deficit of concentrate could yet emerge in the market in the next few months -- a situation that in our view could lead to a squeeze on the zinc price," Investec said.

On Tuesday, MMG announced approval of an updated development plan for the Dugald River project in Queensland, Australia.

The updated plan for Dugald River includes a mine production rate of 1.5 million mt/year, construction of a concentrator and annual production of approximately 160,000 mt of zinc in zinc concentrate, plus byproducts, over an estimated 28-year mine life.

This places Dugald River within the world's top 10 zinc mines when operational, the company said.

The latest guidance for zinc production at 160,000 mt is lower than the earlier guidance of 200,000-220,000 mt, Barclays said in a research note Wednesday, adding that a decline in the average size of mining stopes to under 20 m from 25 m earlier has reduced the minable ore.

Lower annual production has extended mine life by eight years, however, the bank added.

"We are positive about the long-term fundamentals for zinc," MMG's CEO Andrew Michelmore said in a statement. "This decision reflects our confidence in zinc at a time of shrinking global supply."

He added: "Under the updated plan, Dugald River will come online at around a time when significant global zinc supply will disappear through mine closures."

The expected remaining cost of the project to first shipment of concentrate is around $750 million plus interest costs; discussions to amend funding arrangements have commenced with MMG's existing lenders.

Following satisfaction of remaining conditions, construction of remaining surface infrastructure facilities would begin in 2016, with first production from a Dugald River concentrator expected during the first half of 2018.

MMG's Century open-cut zinc mine in Queensland is in its final year of production, processing and shipping.

The mine produced 221,049 mt of zinc in concentrates in the first half of 2015.
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