Zinc begins to shine again after a decade in the doghouse

Zinc metal 2022 supply chain green metal
Similar to nickel, copper and other base metals, zinc’s revival is sparked by increasing industrial demand along with its new role in renewable energy.

Every dog has its day, even in the metals world where zinc has emerged from a decade in the doghouse to become the focus of a series of corporate deals followed by an all-time price high of US$4,507 a tonne this week – double its price of two years ago.

The spark for zinc’s revival is a combination of the same forces, which have revitalised nickel, copper and other base metals – strong demand from established industrial consumers and a new-found role in energy transition and renewable power.

An underlying annual deficit in the zinc market of close to 200,000t points to the price remaining elevated with global consumption of the metal rising by 5.8% a year – outstripping a 4.9% increase in production.

Adding to the pressure in the zinc market have been a series of project closures in Europe caused by high energy costs, which have rendered old metal refineries uneconomic.

Zinc price rise sparks interest in small caps

For Australian investors the reawakening of zinc has created interest in a number of small stocks exposed to the metal, including AuKing Mining (ASX: AKN), which recently reported an expanded resource at its Koongie Park project in the north of WA as well as Zenith Minerals (ASX: ZNC) and Rumble Resources (ASX: RTR), which are exploring a potentially major discovery at Earaheedy, also in WA.

Other explorers with zinc among their targets include Anax Metals (ASX: ANX), Legacy Minerals (ASX: LGM), QMines (ASX: QML), and Alicanto Minerals (ASX: AQI) while New Century Resources (ASX: NCZ) continues to generate handy profits from retreating the tailings at the Century zinc mine in Queensland.

Those small cap stocks are benefiting from the record price and interest in deal flow among mid-cap and mining majors where zinc has regained a place as a metal of importance.

Zinc was once at the heart of Australian mining through the fabulous wealth generated in the silver, lead, and zinc mines of Broken Hill in western NSW – birthplace of mining giant BHP (ASX: BHP).

Emerging zinc market in clean energy

With around 60% of zinc used in the basic business of providing a protective coating on steel (galvanizing), zinc has always been had a lower profile than its base metal cousins, copper, nickel, aluminium, and tin.

But growing uses in energy storage, particularly if zinc-ion batteries gain popularity, as well as providing the galvanizing coat on wind turbines (such as those installed offshore), and on the frames of solar panels has opened up new markets for an old metal.

Major miners move on zinc

The corporate deals which elevated zinc into the ranks of what might be called “revival metals” benefitting from energy transitions and new technologies include:

  • BHP spin-off South32 (ASX: S32) is completing a prefeasibility study into the proposed US$1.7 billion development of the Taylor zinc, lead and silver deposit, which lies inside the greater Hermosa project in the US State of Arizona;
  • Copper miner Sandfire Resources (ASX: SFR) is spending US$1.86 billion to acquire the zinc and copper rich Matsa project in Spain; and
  • Bill Beament of Northern Star (ASX: NST) gold fame is making zinc the focus of the first big deal of his new company, Develop Global (ASX: DVP), through the acquisition of the mothballed Woodlawn mine in NSW. Develop already has a copper-zinc project on its books at Sulphur Springs in WA.

The kick-starter for the revival of zinc was the same event which woke a number of commodities, Covid-caused supply chain blockages, followed by higher energy prices in China and Europe which restricted production of the metal.

Russia-Ukraine war pressures zinc supply chains

Capping off the case for zinc is the Russia-Ukraine war, which is limiting the modest levels of zinc exports from both countries, and though not a major factor in the overall zinc market its adds pressure on the supply side.

Interest in zinc has been a slow burn until recently with South32 chief executive officer Graham Kerr, leader of the zinc cheer squad, saying earlier this year that investors were blind to a coming zinc boom.

That comment came at the same time South32 released the prefeasibility study into the Taylor project which Kerr said had “the potential to be a globally significant producer of green metals critical to a low carbon future”.

The cost of developing and operating Taylor surprised some analysts with UBS, an investment bank, telling clients that costs were 60% higher than previously expected.

Kerr said the costs issue could be managed because the zinc price would be more attractive than most investors expect.

Zinc latest green metal to attract attention

He told the Australian Financial Review newspaper after the release of the prefeasibility study that zinc and silver were highly attractive green metals at a time of rising global temperature with annual demand for zinc likely to double to 24 million tonnes a year.

On top of rising demand, Kerr said: “We expect to see supply fall by about 3.5% by 2030, driven by mine depletion, lower average ore grade, and a tighter approval pathway” for new mines.

On the day Kerr made those comments (17 January) zinc was trading at US$3,520/t. It was since risen by 28% to US$4,507/t – or almost US$1,000/t in less than three months.

Game-changer

Sandfire’s Matsa project in Spain is shaping as a game-changer for the company, which has been largely known as a copper and gold producer from the ageing DeGrussa mine in WA.

Macquarie Bank reckons that zinc and copper production from Matsa will quickly account for 57% of Sandfire’s net present value.

Develop’s plans for Woodlawn have the hallmarks of Beament’s first gold deal which saw Northern Star acquire the unloved and marginally profitable Paulsens mine in WA, using it as a stepping-stone to become one of Australia’s biggest gold producers.

A long-term operation with a mining history that dates back to the 1970s, Woodlawn is located 50km northeast of Canberra with a number of owners enjoying mixed success with Heron Resources (the owner before Develop) struggling with cost overruns, processing problems and Covid-caused shortages.

As he did with Paulsens, Beament’s plan is to focus on the underground mining efficiency (his speciality) while hunting high-grade lenses which could significantly boost profitability.

Critical metal

Despite its lacklustre reputation, zinc is a critical industrial metal and the fourth most commonly used mineral topped only by iron, aluminium, and copper, with a history of use dating back thousands of years to when it was first mixed with copper to produce brass.

Today, it has all of its original markets which form the foundation zinc’s future together with the potential to become a leading technology metal in the next generation of low-cost electricity storage batteries able to outperform lithium in some applications.

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