The Ox bashing going on at the moment with zinc battons is very short term orientated. If you are a longer term investor, you have nothing to worry about IMO.
Zinc will one day be the talk of Ox supporters, thankful that such a bargain was handed them on a platter. And it won't necessarily be 2-3 years like some analysts have been touting. Commodity analysts are notoriously bad at forecasting, often looking at current and expected supply/demand stats and making forecasts. They're track record over the past five years especially could have been beaten by a preschooler painting numbers on poster paper. Zinc will rebound once again to the usual surprise of analysts.
Some extenuating factors:
(1) Zinc usage increases exponentially as an economy matures, as zinc is used much more during the "middle class" phase. For example, there is around ten times more zinc used per unit of steel in the U.S. than in China. So even if steel demand stagnates in India and China, as their economies industrialise the amount of zinc used will need to rise TEN FOLD.
(2) Zinc has quickly become uneconomic for many miners and this can cause a rapid snap back in price. Zinifex was a low cost producer and currently looking at around 13c per pound profit. A snap back towards just 1.20 p/p will result in a tripling of profit.
(3) Zinc has etched out a massive bullish descending wedge with a long term upside target of 4.00 p/p approx.
As so many have been extremely negative on zinc, let's humour ourselves with some extreme positivity. Imagine Zinc at 4.00 p/p and all else being equal, Zinifex's profit would have risen nearly 30 fold. Now factor in longer term, Asia's steel usage doubling and zinc's corresponding increase ten times that to accommodate maturing economies.
On that day the merger would be seen as a company maker.
OXR Price at posting:
0.0¢ Sentiment: LT Buy Disclosure: Held
