Investors bet on zinc ahead of supply crunch

Market attention turns toward Vancouver juniors following base-metal takeovers

By Joel McKay

The zinc market�s supply-and-demand fundamentals are out of whack, but that hasn�t stopped investors from sinking money into the oft-ignored base metal.

Zinc, used primarily to make corrosion-resistant steel, has been the underdog of the commodities sector for the last few years, but a handful of deals in recent months has generated renewed interest in the sector.

...a lot of [attention] has focused on the takeovers in the sector in the last several months...following news that Belgian zinc producer Nyrstar planned to take out Breakwater Resources in a friendly $663 million acquisition.

That deal came just six months after Nyrstar bought Farallon Mining, a Vancouver-based zinc producer, for roughly $400 million.

There�s also news that Swiss commodities giant Glencore planned to pay US$3.2 billion to acquire additional shares in Kazzinc, a major producer of zinc in Kazakhstan.

With those companies off the market, few pure zinc players remain, allowing Vancouver�s junior miners to swoop in and garner renewed investor attention.

But all this movement in the zinc sector has surprised analysts and investors alike.

The price of the base metal has languished slightly above the US$1 per pound mark for the last several months as global metal production continued to outstrip consumption.

But some analysts are pointing to zinc as the next big story in the already booming commodities sector.

In a recent research note, investment bank Goldman Sachs pointed to "significant" annual zinc production deficits starting in 2013.

"We believe that global zinc consumption will move ahead of production from 2013, leading to growing pricing tension and justifying significantly higher prices," Goldman wrote in a research note. "Building some exposure to zinc over the next 12 months should be rewarding on a two-to-three-year view."

The reason for the production decline has more to do with mine shutdowns than a significant increase in demand.

At least four of the world�s largest zinc mines are expected to close in the next four years, slashing global production rates.

Zinc has been such an undesirable metal in the last few years (plummeting as low as US$0.50 a pound in 2008) that there�s been little, if any, investment in the sector.

As a result, when mines shut their doors, there are few projects that can readily take their place.

Goldman Sachs said there is evidence that Chinese zinc mine production is levelling out.

The country also recently cut the import duty on refined zinc from 3% to 1%, signalling that a supply shortage could be on the way.

Said Goldman: "If that is correct... zinc could begin to feel a bit like the copper market in a couple years' time." 

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About Canada Zinc Metals Corp.

Canada Zinc Metals is a mineral exploration company focused on unlocking the potential of a future long life mining district in British Columbia, Canada.   The Company is the dominant land holder in a world class mineral belt called the Kechika Trough which hosts in excess of 80 million tonnes of base metal resources. 

Canada Zinc Metals owns a total of 78,526 hectares in 233 claims which extend northwestward from the Akie property for a distance of 125 km.

The Company has filed a NI 43-101 report supporting the estimated inferred resource of 23.6 million tonnes grading 7.6% Zn, 1.5% Pb and 13.0 g/t Ag (at a 5% Zn cut off grade) at its flagship Akie property.  Using this estimate, the deposit contains 3.95 billion pounds of zinc, 780 million pounds of lead and 8.95 million ounces of silver.  The deposit remains open in all directions.

Tongling Nonferrous Metals Group and Lundin Mining are significant shareholders of the Company.

Please visit us at www.canadazincmetals.com