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Steel Demand Galvanizes Zinc
Prices Richard (Rick) Mills As
a general rule, the most successful man in life is the man who has the best
information The
global zinc industry is revving back up. China’s net imports of refined zinc
was 15,401 tonnes in February. China’s zinc consumption is forecast to rise to
5.4 million metric tonnes this year. That’s
good news for upstream zinc suppliers like Xstrata (XTA-LSE) and OZ Minerals
(ASX-AUD) – both involved in the
development and production of zinc. The main reason zinc is performing well is
because it’s the key ingredient in galvanized steel. Without
zinc, steel corrodes. Galvanizing
steel is the main end-use of zinc (40%), followed by brass & bronze (26%),
zinc semi-manufactures (12%), zinc alloying (9%), and Chemicals (6%)
This week
Xstrata (XTA-LSE) - a $50 billion global mining mammoth - gave a clear signal
how it is going to react to the increased zinc demand. Xstrata
announced it is planning to extend the life of its Black Star zinc mine in
Australia by four years to 2016 at a cost of $122 million - a fraction of the
cost of building a new mine. The Black
Star mine will produce about 5 million tonnes of zinc and lead-bearing
ore. It is part of a three-mine complex
feeding Xstrata’s zinc and lead smelting facilities in northern Queensland
State. The
extension will allow Xstrata to maximize the use of a nearby ore concentrator
which is currently being modified to increase input from 6.4 million tonnes to
8 million tonnes annually. What’s
interesting here is that Xstrata has an almost identical opportunity to expand
its Perseverance Mine in Quebec, Canada which feeds the Matagami Lake mill
complex - one of the largest zinc camps in the world. If that
happens this summer the biggest beneficiary might be Donner Metals DON TSX.v, a
tiny ($25 million market cap) Canadian base metals exploration company who signed
a joint venture agreement with Xstrata covering exploration and development
within the Matagami Lake Mining Camp. Xstrata
spent $130 million in 2001 refurbishing their 2,600 tonne per day mill. But
their current deposit will be exhausted in 2012 and they need new feed. Donner
and Xstrata have discovered a new deposit - the Bracemac/McLeod (BM) - and
Xstrata is now completing an “Accelerated Feasibility Study” on the BM which is
due this summer. Bracemac/McLeod
has an NI 43-101 Indicated Resource of 3.62 million tonnes grading 11.52% zinc,
1.60% copper, 31.55g/t silver, 0.49g/t gold and is located only six kilometres
from the mill complex. Xstrata
is funding the feasibility study as part of their back-in right under the
Matagami Agreement. Will it be positive
or negative? Will it go into
production? Donner shareholders are
wondering what it’s all going to mean for them. As the
Australian example shows, Xstrata’s strategy for meeting increased zinc demand
is to expand existing mines - as it is doing with the Black Star zinc mine. You need zinc to make steel that
won’t corrode. Surging demand from China and
Europe is driving the price of zinc higher. To this author Donner Metals
relationship with Xstrata is suddenly looking like more than a casual date. Richard (Rick) Mills If you're interested in
the junior resource market and would like to learn more please come and visit
us at aheadoftheherd.com *** Richard is host of
aheadoftheherd.com and invests in the junior resource sector. His articles have
been published on over 200 websites, including: Wall Street Journal, SafeHaven,
Market Oracle, USAToday, National Post, Stockhouse, Casey Research, 24hgold,
Vancouver Sun, SilverBearCafe, Infomine, 321Gold, Kitco, Gold-Eagle, The
Gold/Energy Reports, Calgary Herald and Financial Sense. *** Legal Notice /
Disclaimer Richard Mills does not
own shares in any company mentioned in this article. Donner Metals is an advertiser on aheadoftheherd.com |
