Aug 04, 2016

Zinc upswing to continue

Zinc upswing to continue

Zinc prices are on the up and so are the fortunes of junior Red River Resources as it continues to advance its Thalanga project in North Queensland.

The company is boosting its exploration team after a recent high-grade discovery at the Liontown East target within the Thalanga zinc project and plans to begin refurbishment work this month on the site’s processing plant.

The junior bought the polymetallic processing plant and surrounding tenements from failed miner Kagara’s administrators in 2014 and plans to bring the operation back online at a cost of about  $17.2 million.

“We’re on our way. We’re going to start fixing the plant and we’re going to keep pushing hard on that exploration front and that will put us in good shape to capitalise on what is coming,” Red River managing director Mel Palancian said.

Demand outstrips production

Zinc prices have risen about 40 per cent since the start of the year and the metal has moved into a supply deficit, where global production is lower than demand.

“Looking at 2016 we do think there’s about 800,000 tonnes of zinc that will come out of the market – that’s either through mine closures or lower grade, which means production for 2016 is probably going to be around 13.1 million tonnes (globally),” Fat Prophets resource analyst David Lennox said.

“Demand is, we believe, going to stay pretty flat from 2015 at around 13.7 million tonnes and hence we’ve got quite a significant deficit forming in the market.”

Mr Lennox said the stockpile of zinc in the LME markets had started to fall significantly, with a corresponding rise in the zinc price.

“We expect that maybe in 2017 the deficit may be about the same and we would continue to see LME inventories of zinc fall.  We would expect to continue to see the zinc price rising in 2017,” he said.

The only headwind Fat Prophets could see for zinc prices was the movement of the US dollar.

“Zinc being a commodity that is priced in US dollars, if the US dollar does rise that will put pressure on the zinc price,” Mr Lennox said. “That potentially could be the key headwind for 2017 – we don’t think it will be a problem for 2016.”

Glencore late last year announced a 500,000-tonne reduction of contained zinc metal mine production across its operations in Australia, South America and Kazakhstan.

This included suspending operations at Lady Loretta mine near Mount Isa and reducing output from  George Fisher and McArthur River.

The company said the main reason for the reduction was to preserve the value of Glencore’s reserves in the ground at a time of low zinc and lead prices.

No boost for Glencore Mount Isa production

Glencore North Queensland Zinc Assets executive general manager Denis Hamel this week said the company had not made a decision to restart mine production at Lady Loretta, which remains in care and maintenance.

The George Fisher Mine was operating at 3.1 million tonnes per annum and Glencore had no plans to change the production rate, he said.

 Meanwhile, the Black Star Open Cut (BSOC) mine is moving into care and maintenance in the next few months after more than a decade of mining activity.

“Over the course of planning for BSOC’s care and maintenance, we have proactively redeployed 99 people into alternative roles within other areas of the Mount Isa Mines operation and at Glencore’s McArthur River Mine in the Northern Territory,” Mr Hamel said.

“We continue to work closely with the remaining 63 employees to ensure they are appropriately supported and to identify opportunities for redeployment within our Mount Isa operations or other Glencore operations.”

Exploration potential

Mr Palancian said the closures of Queensland’s Century mine and the Lisheen mine in Ireland in recent months had taken about 500,000 and 180,000 tonnes of metal respectively out of annual production.

“They’ve gone and because, really, the majors haven’t been exploring for zinc we really  haven’t found good, large high-grade zinc ore bodies for the last 20-25 years,”  he said.

Red River Resources has a lot a faith in the exploration potential of its Thalanga tenements, and it is paying off – with drilling earlier this year increasing the resource for the Far West deposit by 42 per cent to 1.6 million tonnes at 14.9 per cent zinc equivalent.

“It reinforces the market’s view that Red River and Thalanga is a quality zinc stock – you can see the reaction to that in our share price,” Mr Palancian said.

“Now it looks like we’ve made a discovery of a new zinc ore body (at Liontown East) – very high-grade quality zinc and, importantly, we’ve already got the (processing) plant.”

The company’s share price has risen from less than 10 cents in January to about 21.5 cents now.

Mr Palancian said Red River had hired six more geoscience staff this week and had a second drill rig due to come on site next week.

“Really it’s about pushing our exploration program as aggressively as we can because we’re getting rewarded for it,” he said. “We always said that this belt was forgotten about and hasn’t been tested properly and I think the systematic approach that we’re taking is delivering results.”

Mr Palancian said work to bring the processing plant back online would begin this month and would be handled by a site team with assistance from selected Townsville contractors.


The mill at Red River Resources’ Thalanga zinc project.