While budget allocations for most commodities are expected to increase this year as the recovery in the mining industry continues, zinc will outperform owing to the strong prices seen in 2017, the latest report from S&P’s Global Market Intelligence’s Metals & Mining team states.

Prompted by the surge in zinc prices since early 2016, several junior companies launched exploration programmes for the metal in 2017, resulting in a substantial uptick in the global zinc exploration budget.

S&P Global Market Intelligence identified 199 companies that budgeted a combined $489.4-million for zinc and lead exploration in 2017, representing a 29% increase on the $378.4-million budgeted by 167 companies for zinc and lead exploration in 2016.

When the yearly average zinc price peaked at $1.48/lb in 2006 and 2007, after doubling from 2005, zinc explorers reacted quickly and boosted the total budget to a high of $968.8-million in 2008.

However, the report points out that prices had begun to decline in the second half of 2007 as the financial crisis sparked a global selloff, and zinc budgets dropped by almost two-thirds in 2009.

“From 2010 through 2016, spending on zinc exploration tracked the fortunes of the mining industry in general, rather than the zinc price, as poor financing opportunities for junior explorers and reduced revenues for major and intermediate producers forced many companies to slash exploration spending for all metals,” the report says.

It adds that, although the zinc price began recovering in early 2016, along with the copper price, the market improvement was insufficient or too late to prevent another decline in zinc budgets for the year.

“As investor sentiment improved, precious and in-demand metals such as zinc and lithium attracted the most interest and enjoyed the largest budget increases.”

While zinc budgets increased for all stages of exploration in 2017, the mine site budget rose the most.

“The mine site share of the global zinc budget reached an all-time high of 46%, up from 39% in 2016, with the increase mainly coming from some of the larger producers such as Votorantim, Teck Resources and Industrias Penoles, which collectively doubled their mine site budgets.”

Grassroots budgets had the second-largest increase in percentage, 36% year-on-year, and the $113.6-million allocation accounted for 23% of the global zinc budget.

Budgets for late-stage feasibility exploration remained flat, rising by only $600 000 year-on-year to $149.9-million.

“This underperformance resulted in the late-stage share sliding to 31% of the global budget, from 40% in 2016. The major and junior zinc producers benefited from improving zinc prices and began expanding their exploration efforts, which led to the 29% rebound in zinc allocations over 2016,” the report notes.

The report states that zinc prices had been the product of speculative interest in 2017, but they also had clear fundamental support.

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