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General Market Commentary
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General Base Metals
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General Market Commentary
Zinc Juniors in the Spotlight After Prices Hit Decade High
Zinc prices have been surging since the beginning of the month, and broke the $3,000-per-ounce mark on August 16. Supply concerns, a strong demand outlook from China and a decline in warehouse inventories have supported the increase.
With that in mind, the Investing News Network reached out to zinc juniors to get more insight on the price rally and the future of zinc of the zinc market.
Read on to learn what execs had to say. Responses were received from: Ascendant Resources (TSXV:ASND) CEO Chris Buncic, Avrupa Minerals (TSXV:AVU) Director Mark Brown, Callinex Mines (TSXV:CNX) CEO Max Porterfield, Canada Zinc Metals (TSXV:CZX) CEO Peeyush Varshney, Canadian Zinc (TSX:CZN) VP of Corporate Development Steve Dawson, Fireweed Zinc (TSXV:FWZ) CEO Brandon MacDonald, Margaux Resources (TSXV:MRL) CEO Tyler Rice and Sphinx Resources (TSXV:SFX) CEO Normand Champigny.
How higher zinc prices are affecting juniors
“The price rally is bringing the spotlight back onto high-quality junior zinc explorers,” Varshney (Canada Zinc Metals) said. “Certainly it is making the ‘in situ’ value of the large resource we have already delineated worth significantly more — close to US$8.5 billion in-the-ground value.”
Similarly, Buncic (Ascendant Resources) noted, “the company’s sales are tied directly to LME pricing — a 5-percent move in the zinc and lead price from today’s spot prices translates into an increase of $4 million in EBITDA on an annual basis for Ascendant.”
Champigny (Sphinx Resources) said he expects the recent price rally, combined with good exploration results, to translate into an increased share value for his company. Sphinx Resources is working together with mineral exploration agency SOQUEM to develop an asset in Quebec.
Brown (Avrupa Minerals) agreed, and said the surge in prices has brought interest from many companies looking to pursue joint ventures or invest in his company. Avrupa Minerals explores for zinc and copper in the prolific Iberian Pyrite Belt of Southern Portugal.
According to Dawson (Canadian Zinc), Canadian Zinc has also received more investor interest and institutional attention. The company plans to develop the Prairie Creek mine in Canada.
“The zinc price rally is improving the potential economics associated with our lead-zinc properties, in particular Jackpot, Jersey-Emerald and Sheep Creek in BC,” Rice (Margaux Resources) said.
Meanwhile, MacDonald (Fireweed Zinc) said that at first glance, the price rally doesn’t seem to be affecting zinc juniors much. “I attribute this to lofty expectations placed on this zinc rally by metals analysts and pundits over the last year. [There’s been] so much talk of $4,000 per tonne that investors may not be impressed yet, although $3,000 per tonne is an important milestone,” he explained.
In the case of Callinex, Porterfield said the company evaluates long-term exploration and development opportunities instead of relying on day-to-day price movements.
What’s ahead for zinc prices?
Many analysts remain optimistic about zinc prices in 2017, and the zinc juniors we reached out to agree.
Brown (Avrupa Minerals) believes prices will continue to increase, stabilizing at over $1.50 per pound. “It takes a long time for new mines to come on stream, and exploration budgets have been low for well over five years now,” he said, adding that declining zinc inventory levels will also help push prices higher.
MacDonald (Fireweed Zinc) agreed, saying that even if major miner Glencore (LSE:GLEN) restarts zinc production and China stops shutting down mines, he still doesn’t see a long-term solution to the problem of insufficient investment in supply.
“The zinc price should go up further, although it does appear to be a ‘slower-burn’ situation than had been projected by many analysts,” he said.
Similarly, Champigny (Sphinx Resources) believes prices will continue to receive upward pressure due to the environmental awakening in China, growing demand from Asia and a lack of significant new zinc mines. For Buncic (Ascendant Resources), the key to keeping prices elevated will be continued positive global economic growth.
In terms of price predictions for the rest of the year, Rice (Margaux Resources) sees $1.40 per pound ($3,090 per tonne) as zinc’s near-term trading range.
“China’s economic growth proved stronger in the first half of the year than expected. If infrastructure investment activity carries on this way, we should see it continuing to support the price of zinc, and I can see our beginning-of-the-year predictions proving to be lower than year-end prices,” he added.
Meanwhile, Porterfield (Callinex Mines) believes zinc prices will stay high over the long term, with prices staying above $3,000 per tonne for the medium term.
Key zinc market factors to watch
The zinc market has been in deficit for the past several years, and the CEOs we spoke to don’t see that trend changing in the short term.