Contents

Introduction

Surging zinc markets over the past year have spurred mining companies across Latin America to forge ahead with new mines and expansions, with zinc-focused miners improving balance sheets and allocating higher capex for everything from plant equipment to exploration.

Zinc prices, which jumped 38% in 2017, continued their bull run into 2018, hitting an 11-year high of US$1.63/lb on February 15 before easing slightly in March. Zinc is primarily used to galvanize steel - adding a coating of zinc to prevent corrosion - for use in the construction, automobile, energy and telecommunications industries. Zinc is also used to die-cast metal parts, for making brass and in applications in the pharmaceutical and textile industries.

After nearly a decade in the doldrums, zinc prices began to rise in early-2016. While most of the base metals bottomed around the same time, zinc had perhaps the most tangible reasons for optimism. Two of the world's big zinc mines, MMG's Century mine in Australia and Vedanta Zinc's Lisheen operation in Ireland, reached the end of their lives at the end of 2015. Further, Glencore cut 500,000t of zinc production in 2016.

From there, global zinc mine output climbed 3.1% to 13.2 million tonnes (Mt) in 2017, its first increase in five years, as countries including Peru and Mexico increased production, according to the International Lead and Zinc Study Group (ILZSG). But usage also grew, rising to 14.2Mt in 2017 from 13.9Mt in 2016 due to increased demand from Australia, Brazil, China and Japan and spurring a 495,000t market deficit, compared to 122,000t in 2016.

ILZSG and UK consultancy GFMS expect the deficit to continue in 2018, though at a somewhat more moderate level. As for the medium term, global zinc output will continue to grow at an average of 2.4% annually through 2021, Fitch Ratings unit BMI Research said in a report. But demand is also forecast to remain strong and many market watchers expect to see continued deficits in the next few years.

Antamina mine in Peru, a JV between Glencore, BHP, Teck and Mitsubishi. Credit: Minera Antamina

China leads the world's zinc mine production with 5.1Mt, or 38% of the global total, in 2017, and is second behind Australia in terms of reserves. Peru, Mexico and Bolivia lead Latin America and are all within the global top 10 for zinc mine output and reserves, together accounting for 20% and 23%, respectively. All three, as well as some of their regional neighbors, host zinc projects that can be expected to advance in the year ahead.

The latest zinc price strength has coincided with a wider mining industry recovery, which is further supporting primary zinc-focused spending not only at development projects but at the junior exploration level, as well.

Many of the later-stage projects in the pipeline were originally expected online by now, but the reality was a much longer down cycle than many expected some five years ago. Now that zinc is showing firm consolidation at higher prices, it is time to dust those projects off.

"The mining industry was in serious crisis up until the first quarter of 2016, but the increase in metals prices now makes it possible to spur the mining industry," said José Picasso, chairman of Peru's biggest zinc producer, Volcan. "We have an aggressive exploration program and there are interesting prospects."

Cover photo: Inside the Cajamarquilla zinc refinery. Credit: AFP

Figure: Global Zinc Mine Production

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