Trevali, Teck and Vedanta well-positioned for coming zinc revival

With all the talk of improving fundamentals for zinc, Trevali Mining (TSX: TV; US-OTC: TREVF) may soon find itself in a sweet spot.  

The company is already producing zinc and lead-silver concentrates from its Santander mine in Peru, and is on track to start commissioning its wholly owned Caribou polymetallic mine and mill complex in northeastern New Brunswick in the first half of 2015.

The Caribou complex is expected to produce 93 million lb. zinc and 32.5 million lb. lead each year, in addition to 3.1 million lb. copper, 730,000 oz. silver and 1,500 oz. gold.

“We believe Trevali is the best vehicle for zinc leverage on the TSX,” Joseph Gallucci and Sean Bracken of Dundee Capital Markets write in research note. “With production going well at Santander and mill construction progressing in New Brunswick at Caribou, Trevali should have two producing operations online and fully ramped up by the time we expect improving zinc supply and demand fundamentals to buoy prices in 2015.”

Some companies like Teck Resources (TSX: TCK.A; NYSE: TCK) are even dusting off old zinc mines to take advantage of looming supply constraints. The Vancouver-based miner restarted its Pend Oreille zinc mine in Washington State, and recently completed its first shipment of zinc and lead concentrate from the mine to its operations in Trail, B.C., for processing. Teck operated Pend Oreille from 2004 until 2009, when the zinc mine was placed on care and maintenance due to unfavourable market conditions.

Unfavourable market conditions for zinc appear to be a thing of the past. London Metal Exchange (LME) warehouse inventories of zinc have fallen to 682,000 tonnes from more than 1.2 million tonnes in 2012, according to figures from Investec Securities in London.

The most recent figures from the International Lead and Zinc Study Group (ILZSG) show that from January to October this year, the global market for refined zinc metal was in deficit by 277,000 tonnes, with total reported inventories declining by 273,000 tonnes over the same period.

Global demand for refined zinc metal rose by 5.9% during the same time, the ILZSG said in a release of preliminary data on Dec. 17. The increase was driven by an 11.6% rise in demand in China, a 9.4% gain in Korea and a 2.8% advance in the U.S.

Vedanta Resources (LSE: VED; US-OTC: VDNRF) is one of the companies that is making a play on the looming shortfall. Earlier this year Vedanta announced that it will go ahead with plans to develop the Gamsberg zinc mine in the Northern Cape Province of South Africa. The company expects the mine will produce 250,000 tonnes of zinc a year by early 2018.

Zinc is one of Patricia Mohr’s top picks for 2015. The vice-president of economics and commodity market specialist at Scotiabank said that of the 32 commodities covered in the Scotiabank Commodity Price Index, LME zinc ranked fifth in the top-five performing commodities of 2014, posting a 11.6% price gain in the year through Dec. 15.

She also noted that zinc prices strengthened in the last six months of 2014, with prices averaging US$1.03 per lb., and noted investors and commodity funds expect “zinc concentrates to move into a supply-side ‘deficit’ by 2016 alongside significant mine depletion.”

Among the upcoming mine closures are Century — the third-biggest zinc mine in the world — where production is expected to end in the third quarter of 2015, and the Lisheen zinc mine, which will likely close in late 2015 or early 2016.

Back at Trevali’s Caribou complex, meanwhile, the main dewatering pumps have been installed and are working through 600 gallons  per minute. The mine has been dewatered to 250 metres below surface so far, and the company has installed a 3,000-tonne-per-day semi-autogenous grinding mill.