Fitch forecasts rebound in zinc production

Global zinc mine output will recover in the coming years following several years of decline, Fitch Solutions forecasts in its latest industry report, adding that after contracting by almost 10% between 2013 and 2020, annual output will commence a multi-year uptrend starting in 2021.

High prices by historical standards have encouraged investment into a pipeline of new projects and restarts, which will continue to come online in 2021.

Elevated zinc prices relative to historical levels will encourage investment in new projects, expansions and restarts as the economics of the projects maintain their attractiveness, Fitch asserts. The group’s analysts also see scope for some idled capacity to be restarted. Fitch forecasts global zinc mine production to grow at an annual average rate of 1.8% over 2021-2029, compared with 0.2% over the previous decade.

China will remain largest global producer

The analytics firm expects zinc mine production in China will stagnate over the coming years due to declining ore grades and increasingly stringent environmental regulations.

China’s conservation of minerals and consolidation of its mining industry will weigh on zinc output, and the strong support it gives to its state-owned enterprises (SOEs) will help ensure that the SOEs continue to dominate the country’s zinc industry, with increasing consolidation of smaller miners, Fitch forecasts. Zijin Mining will remain a dominant producer in China’s zinc sector with ownership of China’s second-largest zinc mine, Wulagen, and its 95% ownership in the Miaogou-Sanguikou operations.

Fitch forecasts the country’s zinc production to edge higher, from 3.85 million tonnes in 2021 to 3.87 million tonnes by 2029. Despite this muted growth rate, China will remain the largest zinc producer in the world by a wide margin, and Fitch forecasts China’s share of global production to slide from 29% in 2021 to 26% by 2029.

Peru

Fitch predicts Peru will remain a top producer of zinc concentrate over the coming years. The country is home to approximately 57 mining firms, according to the Ministry of Energy & Mines, which consist of both international firms such as Teck Resources (TSX: TECK.A/TECK.B; NYSE: TCK) and Glencore (LSE: GLEN) and as well as domestic miners.

Despite the large number of players, Peru’s zinc sector is dominated by the Antamina operation and Nexa Resources’ operations of Cerro Lindo and El Porvenir. Antamina produced 303,000 tonnes in 2019, marking a 25.8% year-on-year contraction from 409,000 tonnes in 2018. In 2019, Cerro Lindo and El Porvenir respectively produced 250,000 tonnes and 97,000 tonnes of zinc.

Operations at Antamina were suspended from mid-April to late May 2020 due to the Covid-19 pandemic, but nonetheless, Glencore reported 4.0% year-on-year growth in zinc output at the site during the first half of 2020.

Elevated zinc prices will allow companies to move forward with projects within the pipeline, supporting stable growth. Fitch points out that as of November 2020, Tinka Resources (TSXV: TK) is continuing to develop the Ayawilca asset with it recently beginning a resource expansion drill program, which it will continue into 2021. The company’s current timeline aims to complete the feasibility study by 2021-2022 then begin operations by 2023, producing approximately 140,000 tonnes of zinc concentrate in its first year.

Fitch also expects Nexa Resources  (TSX: NEXA; NYSE: NEXA) to pick back up the development of its Shalipayco project, which in the third quarter of 2020 was in the prefeasibility study phase and on hold due to its changed capex strategy in response to Covid-19. Peru has the third highest number of new zinc projects in the pipeline at 16, according to Fitch’s Global Mines Database.

Australia trajectory

Following 2019’s year of robust growth, Fitch expects Australia to maintain its positive trajectory over the coming decade. During 2019, the ramp up of MMG’s Dugald River mine and the restart of Glencore’s Lady Lorreta mine at Mount Isa led the increase in Australia’s zinc mine output by an estimated 14% year-on-year.

Fitch expects New Century Resources (ASX: NCZ) to be a significant driver of growth as the company ramps up its Century mine.  The mine has successfully refurbished its 12 million tonne per year zinc flotation plant and restarted operations. In turn, zinc output reached 33.6kt in the third quarter of 2020,  marking a 28.2% year-on-year increase. Fitch estimates the operation is on pace to produce approximately 120,000-132,000 tonnes per year.

According to Fitch,  zinc production in Australia will increase from 1.4 million tonnes in 2021 to 1.6 million tonnes by 2029, averaging 2.4% growth year-on-year, on the back of elevated zinc prices and its solid project pipeline. Junior miners will continue to advance zinc projects in Australia, given the positive outlook for zinc prices over the coming years, Fitch said. Australia currently holds a combined 27 zinc-related new projects, expansions and restarts in the analyst’s Global Mines Database.

This article first appeared in MINING.com, part of Glacier Resource Innovation Group.