PALM BEACH, Florida, May 15, 2018 /PRNewswire/ --
Marketnewsupdates.com News Commentary
What do a pack of batteries, a bottle of sunscreen, and a jar of medicine have in common? All of these everyday products contain zinc. These applications barely scratch the surface of the many applications zinc has in people's everyday lives. This rising demand, coupled with slow growth on the supply side, has driven zinc prices to a decade-high, and reignited investor interest in zinc miners like Trevali Mining Corp. (TSX: TV), Teck Resources (NYSE: TECK) (TSX: TECK.A), Glencore PLC (OTC: GLCNF) (LSE: GLEN), Vedanta Resources PLC (OTC: VDNRF), and Callinex Mines Inc. (TSX-V: CNX) (OTC: CLLXF).
Engineers, Doctors, and Investors All Want Zinc
Zinc's demand is being driven by its diverse range of applications. Consumer demand for zinc is consistently growing, particularly as China also embarks on a massive infrastructure plan. This places customers of the diverse metal, like doctors and building engineers, in direct competition with each other. Pretty much everyone seems to want to get their hands on zinc right now.
However, the real factor driving up the price of zinc is the lack of supply. Wood Mackenzie expects there will be a deficit of 350,000 tonnes this year and 150,000 tonnes in 2019. Inventory now sits at 176,275 tonnes, the lowest since 2008. This lack of supply has played a huge factor in the price of zinc, which has risen by 25% year over year, going from $1,500 per tonne to as high as $3,500 this January- a ten-year high.
This supply deficit is being driven by several factors. First, zinc is not the most common mineral in the world. There are only a limited number of zinc sources available. Second, many existing overseas zinc mines were recently shut down. For example, in 2015, mining giant Glencore cut 500,000 tonnes of production. This has left the door wide open for a new generation of North American zinc miners to fill the void.
With this perfect storm of high demand and low supply driving zinc prices to ten-year highs, it is likely that investors will be closely watching this new generation of zinc mines. Callinex Mines Inc. (TSX-V:CNX) (OTCQX:CLLXF) is an example of a zinc mining company that could benefit from an increase in investor interest in zinc. On Monday, May 14th, 2018, the company released the results of a preliminary economic assessment (PEA) on its Nash Creek deposit in New Brunswick, Canada. The PEA results showed that the property offers an annual production potential of 77 million pounds (35,000 tonnes) of zinc per year. This would allow Callinex Mines Inc. to cover around a tenth of the current global deficit, a significant contribution.
In The Mining Game, PEA is Key
The PEA is one of the first signals to the public that a mining project is viable. It gives investors a glimpse into the overall potential of the mine. For example, in November 2017, Trevali Mining Corp.'s PEA showed an net-present value (NPV) of $166 million and internal rate of return (IRR) of 23%. Trevali's stock rose to a five-year high in the weeks after its PEA, a testament to how positively the market can react to a favorable PEA announcement.
Callinex Mines Inc. (TSX-V:CNX) (OTCQX:CLLXF)'s maiden PEA results showed that the Nash Creek property boasts a NPV of $230 million with an IRR of 34%. It's important to note that Callinex Mines Inc. currently sits at a market cap of just $20 million, so compared with the valuation of its Nash Creek property, the company is significantly undervalued. Combined with an annual production potential of 77 million pounds of zinc per year, the Nash Creek property could have a significant impact on the landscape of the zinc industry.
In addition to its Nash Creek property, Callinex Mines Inc. (TSX-V:CNX) (OTCQX:CLLXF) is moving forward with other zinc properties. The company's Superjack property is located just 90 kilometers away from Nash Creek. The Superjack Project is hosted within a similar geological environment as the 'supergiant' Brunswick No. 12 Mine, which was previously the world's largest underground zinc mine, and Trevali's nearby Caribou Mine that is currently in operation.
Shares in Callinex rose 17.4% after announcing the results of the independent study but still traded at a steep discount to the potential value of the project, according to the PEA study.
Other Active Zinc Producers Around The World
Glencore PLC (OTC: GLCNF) (LSE: GLEN.L)
Glencore is considered the biggest zinc producer in the world, with its operations based mainly in Australia. This year, the company intends to restart phased production at its Lady Loretta mine, with 100,000 tonnes of production expected in 2018 and an additional 60,000 tonnes in 2019. By 2020, Glencore expects to be producing 18% more zinc than in 2017, as Lady Loretta runs at full capacity and a new project in Kazakhstan comes on stream.
Vedanta Resources PLC (OTC: VDNRF)
Vedanta subsidiary Hindustan Zinc is the world's second-largest zinc producer. Currently, Hindustan operates the world's largest zinc mine, Rampura Agucha, located in Rajasthan, India. Earlier this year, it commissioned two additional mills in Rajasthan to match the growing zinc demand in India.
Trevali Mining Corp. (TSX: TV)
Trevali is a zinc-focused base metals company operating four mines: the Santander mine in Peru, the Caribou mine in New Brunswick, the Rosh Pinah mine in Namibia, and the Perkoa mine in Burkina Faso. As part of its acquisition of the Namibia and Burkina Faso mines from Glencore, Glencore now holds a 25.6% stake in the company.
Teck Resources (NYSE: TECK) (TSX: TECK-A)
Teck is a diversified resources company focused on copper, metallurgical coal, zinc, and energy. The company's zinc operations are mainly based in Alaska at the Red Dog mine. Last year, Teck produced 659,000 tonnes of zinc in concentrate, which was more than its 2017 production guidance.
Why Zinc, Why Now?
Zinc now plays a critical role in human society, and as such, will likely be in demand for the foreseeable future. Unlike other metals that rely on a single industry, zinc has a diverse range of applications including sunscreens, food additives, medicine, rubber, batteries, and many more. This diverse range of applications protects both the demand for and the price of zinc from shifts occurring within any one industry that consumes the metal.
On top of this, zinc faces a serious supply shortage due to the recent closures of a number of zinc mines. This has led zinc prices to a decade high and created a favorable climate for zinc miners like Callinex Mines Inc. (TSX-V: CNX) (OTCQX: CLLXF).
The company is part of a new generation of zinc miners who are moving their projects to completion to help the world satisfy its insatiable demand for zinc. With zinc prices at a decade-high and demand not slowing down, the emergence of a potential world-class mine at Nash Creek may benefit from this perfect storm of soaring demand and dwindling supply.
For more information on Callinex Mines Inc. (TSX-V:CNX) (OTCQX:CLLXF), please visit Microsmallcap.com for a free research report.
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