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Zinc - Demand Exceeding Supply!

Current prices for zinc are hovering around its all time nominal high of US$2.082 per pound. From its 2003 low of $0.34 per pound, zinc has climbed nearly 500% to a $2.062 per pound close on Nov 24, 2006.

This is occurring at a time when physical zinc stores at the London Metal Exchange (LME) have been dropping at a more or less steady pace since March 2004. For the last year zinc stocks at the LME have dropped over 80%.

Fig 1. 2006 Zinc LME Stock and Prices (Data from LME website)

Uses of Zinc

Zinc's many different applications rank it as the 4th most commonly used metal behind iron, aluminium and copper.

Fig 2. Uses of Zinc for 2005 (Data from Brook Hunt, 2006)

The largest use of zinc is for the galvanization of steel. Nearly 60% of the world's annual consumption of over nine million tonnes is used to protect about 100 million tonnes of steel.

The second largest use of zinc is as for making brass alloys.

The remaining zinc consumption is for making paint, chemicals, agricultural applications, household appliances and fittings, in the manufacture of electrical components, in the rubber industry, TV screens, fluorescent lights and for dry cell batteries.

Zinc Production

Global production of zinc has increased by 42% since 1995. Zinc metal output is forecasted to increase by 4.9% next year, but many industry experts expect a supply deficit.

Fig 3. Top 10 Zinc Producing Countries, 2005 (Data from ILZNSG, May 2006)

China is the world's largest producer, consumer and refiner of zinc by a large margin. Canada and Australia are important exporters of zinc.

The largest producing zinc mine in the world is the Red Dog Mine located in Northwest Arctic Borough, Alaska and operated by Teck-Cominco. This massive mine produces over 600,000 metric tons of zinc concentrate per year. However, due to its isolated location, much of the zinc is stored onsite till the sea becomes passable and can be transported to its buyers in Canada, Europe and Asia. Typically concentrate is stockpiled at the port facility from November till June.

Red Dog's zinc sales in the third quarter of 2006 were 80,000 tonnes lower than a year ago due to poor weather conditions that delayed the loading of out-bound vessels (Teck-Cominco Q3 Earnings Report).

Zinc Demand

The largest consumer of zinc, China, accounts for 30% of global demand, nearly three times that of the next closest country, the United States. International Lead and Zinc Study Group (ILZSG) expects China's zinc demand to increase by 6.9% in 2007.

Fig 4. Top Ten Zinc Consuming Countries, 2005 (Data from ILZSG, May 2006)

Zinc Exploration

The recent run-up in the price of zinc due to a supply deficit has mining companies scrambling to increase production and find new deposits. Two Canadian mining companies are close to achieving production.

A complete scooping study was conducted on Canadian Zinc's Prairie Creek zinc/silver/lead mine located in the southern Mackenzie Mountains of the Northwest Territories. It determined that the existing mine, 1000 tonne-per-day mill and supporting facilities could be put into operation within six months of receiving the required permits at a cost of $20 million.

Another $21 million is required to fund and operate an all weather access road, as a First Nations initiative, to the mine from the Liard highway across the Nahanni watershed. The Mackenzie Valley Environmental Impact Review Board is currently considering the permit for this road.

The road would open up additional resource opportunities for oil, gas and other minerals in the area and allow access to the hinterland for the Nahanni Butte Dene Band, Canadian Zinc's First Nation partner.

The Prairie Creek Property hosts a major mineral deposit containing a historically estimated Measured & Indicated resource of 3.6 million tonnes grading 11.8% zinc; 9.7% lead; 0.3% copper and 141.5 grams silver per tonne and an Inferred resource of 8.3 million tonnes grading 12.8% zinc; 10.5% lead and 0.5% copper and 169.2 grams silver per tonne, with significant exploration potential as indicated by the latest drilling reports.

The deposit contains an estimated, in situ 3 billion pounds of zinc, 2.2 billion pounds of lead and approximately 70 million ounces of silver.

The Measured & Indicated mineral resource for Yukon Zinc's 100% owned Wolverine deposit located in the southeast Yukon is 1.2 billion pounds of zinc with significant silver/copper/gold/lead credits bringing the cash cost to $0.24 per pound.

A recently completed feasibility study calculates capital costs before contingency, owner's costs and working capital at $155.7 million. It forecasts metal production in the first three years to be 33,342 tonnes of zinc, 3,577 tonnes of copper, 3,399 tonnes of lead, 3.81 million ounces of silver and 16,043 ounces of gold. The estimated mine life is ten years with a possible four-year extension.

A news release in September reported that the Wolverine Project is not likely to cause significant adverse environmental effects as determined by the Yukon Executive Council Office and Energy, Mines and Resources. This represents a major hurdle completed with any new mining development.

Yukon Zinc is advancing the Wolverine Project towards securing project financing and a production decision in early 2007. Full production is anticipated for 2008.

Published on http://DollarDaze.org - Nov 26, 2006.

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© 2006 DollarDaze

ABOUT THE AUTHOR

Mike Hewitt Mike Hewitt is the editor of DollarDaze.org, a website pertaining to commentary on the instability of the global fiat monetary system and investment strategies on mining companies. His website also provides a no-cost market data feed service with up-to-date quotes on currency exchange rates, commodity prices and major indices. Mike can be emailed at mikehewitt@hotmail.com.
Disclaimer: The opinions expressed above are not intended to be taken as investment advice. It is to be taken as opinion only and I encourage you to complete your own due diligence when making an investment decision.

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