Taking a break from the circus that is the Comey testimony in Washington, DC, let’s look at something that gets much less attention but has the potential to be equally dramatic: the zinc market. That’s right, the base mineral that is associated with sun block and galvanized steel has been making waves in investor and analysts reports lately, due to predictable things like supply and demand, and unpredictable things like geopolitical jockeying. Base metals can be sensitive to news about the politics and economics, and these days one stands out in particular: zinc.
Over the next few years, demand for zinc is expected to grow amid the closure in recent years of some of the worlds largest mines, and anticipated infrastructure spending increases by some of the world’s largest economies like China and the United States. President Trumps talk of increased infrastructure spending, as well as limiting imports of materials for steelmaking, have only added to the speculation that new sources of the mineral need to be mined and produced.
Kootenay Zinc Corp, (OTCQB: KTNNF) (CSE: ZNK.CN), the Vancouver BC based mining company, has potential be a source of new zinc supply in the coming years. The company is currently focused on its Sully Project, a mining prospect located only 30km away from the legendary Sullivan mine. The Sullivan Mine was operational for over 100 years, and was one of the world’s largest SEDEX silver, lead, and zinc deposits. Over its life Sullivan produced 17 million tonnes of lead and zinc and 337 million ounces of silver for a current day production value of US $49 Billion.
Zinc has the strong fundamentals for price appreciation. Falling zinc production has tightened up the market, causing an increase in spot and futures pricing of the mineral. Zinc was the best-performing metal on the London Metal Exchange (LME) in 2016, with year end prices reaching multi-year highs. While zinc prices have been under some pressure in the early part of 2017, due in part to slower demand from China (the worlds top consumer of the mineral) analysts remain positive about its prospects in 2017.
Last month LME zinc inventories were at their lowest level since 2009, and currently are down more than 19% year-to-date. Overall, LME zinc stockpiles have been declining since 2012, and in the last couple of years prices have been rising in tandem. Zinc prices are now close to their highest level in a decade. During the last upswing a decade ago, prices for the mineral climbed 349%.
Like all commodities, zinc prices rise and fall with supply and demand. When demand is weak, zinc stockpiles build and prices collapse. And when prices of the commodity fall low enough, it isn’t cost effective to mine for it. That’s what has happened over the past few years; in 2016 two major mines were depleted and closed down, taking 630,000 tons of zinc resources offline, and the top zinc producer, Glencore, shuttered two depleted mines in Canada in 2012, taking one million tons of zinc offline. Now we’re seeing a resurgence in demand, and in tandem, an increase in the short and long term price of the base mineral.
With all this movement in the economy and the minerals market, Kootenay Zinc Corp may be in the proverbial commodity catbird seat, as global demand for zinc rises amid purported short supplies. The geological features that made the Sullivan Mine such a rich and fertile drilling and mining opportunity are present in the area that comprises the Sully Project, indicating that a significant supply of a mineral in demand may be just a drill hole away.