NetworkNewsWire Editorial
Coverage: Zinc supplies are
dwindling, and spot prices are soaring. Futures look
robust, as well, and, despite a minor pullback toward the end of
the week of October 23, there appears to be a stable forward price
trajectory for the foreseeable future. As fundamental drivers such
as China’s reduced
production of mined and refined zinc loom large, the upside for
smaller sector participants such as Vancouver-based Zinc
One Resources, Inc. (OTC: ZZZOF) (TSX.V: Z) (Zinc One
Profile) is now coming sharply into
focus, and there is still plenty of upside for other sector players
like Vedanta (NYSE: VEDL), Hecla Mining
(NYSE: HL), Southern Copper (NYSE: SCCO)
and Teck Resources (NYSE: TECK).
According to a recent Technavio
report, zinc demand is projected to continue providing upward
of 2 to 3 percent CAGR, as it has in preceding years. The report
predicts that the global zinc market will bear a hearty 4 percent
CAGR through 2021 on the continued strength of vectors such as
China’s trillion dollar-plus “One Belt, One Road” infrastructure
development initiative, given that more than half of the demand for
zinc comes from galvanizing (steel) applications. Zinc on the
London Metal Exchange hit a 10-year high of $3,308 per metric ton
($1.50 per pound) in October and hit a nine-and-a-half-year high on
the Shanghai Futures Exchange of $4,048 per metric ton. Meanwhile,
stockpiles of zinc on both the LME and SHFE are at some
of their lowest levels since 2008 and 2009. As of the end of the
week of October 23, the cash/three-month LME spread is in
significant backwardation,
adding further weight to the supply shortage in the spot market.
According to the International Lead and Zinc Study Group, the zinc
supply shortfall was up 30 percent year-on-year for the first eight
months of 2017 alone.
Such factors are what makes a smaller zinc-focused developer
like Zinc One
Resources (OTC: ZZZOF) (CVE: Z) so interesting,
particularly given the company’s direct access to historically
proven high-grade zinc-oxide mineralization via its Bongara zinc-oxide
mine project in mining-friendly northern Peru’s mineral-rich
Amazonas Region, obtained via the acquisition of Forrester Metals
in June. In
concert with the acquisition, Zinc One Resources closed a fully
subscribed $10 million private placement that will fund
exploration and development costs at Bongara, and it tapped
industry veteran Dr. William “Bill” Williams (PhD, Economic
Geology) as its COO.
Williams brings a considerable amount of raw experience to the
table, having previously served as president and CEO of
gold/copper-focused Orvana (OTC: ORVMF), as well as vice president
of the copper/molybdenum-focused private company Phelps Dodge
Exploration. And quite the table it is, with a proven management
team of exploration geologists and engineers whose top three
members have over a century of combined mining experience focused
on advancing projects into production. Williams will no doubt be
instrumental when it comes to ensuring the short-term and long-term
success of the roughly 20,000-acre Bongara mine project and
adjacent Charlotte Bongara site, which represents nearly 7,700
additional acres of drill-tested high-grade zinc oxide mineralized
land.
Williams is joined by a management team with a track record of
raising capital, leveraging an extensive network to identify new
projects and negotiate potential acquisitions. Backed by this
management team, Zinc One is in a favorable position to execute its
business plan to successfully bring its Bongara Mine Project back
into production and achieve near-term cash flow. A look at the
project’s history emphasizes this potential.
The Bongara Zinc project was discovered in 1974 and was mined in
2007 and 2008 via open-pit operations covering just 37 acres of the
massive site. The mine yielded 358 metric tons per day resulting in
a 60 to 65 percent zinc end product using a very simple Waelz kiln
process before the mine was shuttered in late 2008 due to the
slumping market price for zinc. In addition to more recent
sampling, this historic record offers a solid indicator that the
project’s output can be readily extracted and processed using
simple and straightforward techniques. The project has good road
access and exceptional community relations with the locals.
Extant sampling and analysis indicates a sizeable zinc-oxide
mineralization trend that runs all the way along the Bongara Zinc
Mine site for nearly three-quarters of a mile, extending
northwest into an additional exploration area (Campo Cielo) where
trenching and pit mining have shown similarly high-grade zinc-oxide
mineralization. The companion Charlotte Bongara mine site is
adjacent to the northwest of Bongara. This is the first time these
two projects have been controlled by a single operator, and,
post-acquisition, they comprise an exceptional opportunity for Zinc
One Resources to delineate a substantial trend of high-grade
zinc-oxide that stretches for nearly two-and-a-half miles. The
historical resource estimate (PDF) from
Forrester on the Bongara project contains additional data and
technical work stretching back to the 1990s.
The historical measured and indicated resource for the Bongara
project is a hefty 1,007,796 metric tons at a grade of 21.61
percent zinc (plus 209,018 metric tons at 21.18 percent zinc
inferred). With over 26,247 feet of drilling having already been
completed on the project — including gorgeous intercepts such as
29.5 percent zinc across 50.9 feet, 26.1 percent zinc across 41.0
feet and 29.7 percent zinc across 37.7 feet. It is rare for zinc
mineralization grades to be as exceptionally high as they are at
Bongara, and the fact that the mineralization is on the surface
only enhances the project’s expected economics. Ongoing surface
sampling at Bongara recently showed (http://nnw.fm/o3ghQ) even more promising results,
including two surface channel samples reading 47.73 percent zinc
over 26.6 feet and 25.65 percent zinc over 64.6 feet, as well as an
exploration pit sample of 32.50 percent zinc over 12.5 feet.
Such highly prospective and drill-tested geology at a
past-producing, low-risk project, based on past production records,
makes Zinc One Resources very attractive to investors, particularly
because the simple metallurgy and 90-percent-plus prior recovery
rates mean that the company could have very little trouble
generating cash flow from the project. As one of the only new zinc
companies with near-term production potential and a projected mine
life estimate at Bongara of a decade or more, the exceptionally
high-grade on-surface mineralization at this project will likely be
coming online just as the zinc market supply gap peaks. The company
expects a three-year production timeline moving forward, with an
increased resource estimate by Q2 next year and a PEA by Q3
2018.
Zinc One is one of the few new zinc companies with near-term
production potential, placing it among the ranks of mature
companies with a deeper history in metals.
Vedanta’s (NYSE: VEDL) share price has been
feeling the momentum from rising zinc prices, climbing to just shy
of a yearly high at around $21 (October 30 close). Goldman Sachs
(NYSE: GS) recently upped its stake in the company by 3.9 percent
(to $3.99 million) after JPMorgan Chase (NYSE: JPM) went whole-hog
earlier in October, upping its stake by a whopping 5,527.9 percent
(to $1.164 million). With around a 72 percent share of the India
zinc market under its thumb and occupying the number two slot for
global production behind Glencore, Vedanta, which owns a 64.9
percent stake in subsidiary Hindustan Zinc, is well positioned to
capitalize on higher zinc prices moving forward.
With four operating mines in North America and a bevy of
exploration projects, Hecla Mining (NYSE: HL) is
the biggest primary silver producer in the entire region. However,
the company’s zinc component is starting to shine as the price
rises. The company had around 111,000 tons of zinc in the proven
reserves category at the close of 2016, with the lion’s share
located at the company’s deep underground Lucky Friday
mine in northern Idaho’s Coeur d’Alene Mining District, from
which the company ships lead and zinc concentrates up to British
Columbia for processing by Teck’s massive smelting and refining
complex in Trail.
Teck Resources (NYSE: TECK), a diversified
mining, smelting and refining group, is one of the world’s top
metallurgical producers of coal and zinc and has been looking more
toward zinc as the price of coal continues to sag. The company
recently
reported record zinc production for the second quarter in a row
(102,300 metric tons) at its massive Peruvian copper-zinc mine,
Antamina. It
also upped the 2017 zinc production guidance for the Red Dog site
to as much as 550,000 metric tons, with plans to have shipped one
million tons of zinc concentrate as the season ends during the
first week of November.
Southern Copper (NYSE: SCCO) has a substantial
zinc production footprint in Mexico and continues to see big
profits on the strength of rising copper prices, with better-than-expected Q3 earnings and a doubling of net
profits compared to the same quarter last year. Zinc sales
increased for Southern Copper nearly in proportion to the rise in
copper sales for the company during the quarter, with zinc sales
31.4 percent higher than in Q3 2016. That’s an astonishing figure
for a company that is better known for copper, and, with a supply
deficit in the cards for copper similar to the one in the zinc
market, SCCO may just be getting warmed up.
Mounting demand for zinc from markets like China and a supply
deficit the likes of which we haven’t seen in a decade spell big
things for companies with skin in the zinc game. Zinc One is in an
especially unique position as one of the few younger zinc companies
with near-term production potential. If successfully placed back
into production, the company’s Bongara Mine Project stands to be
one of the continent’s highest-grade zinc mines.
For more information on Zinc One Resources
please visit: Zinc One
Resources Inc. (TSX-V: Z) (OTC: ZZZOF) (FSE: RH33)
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