Nyrstar rides 80-cent zinc price wave Strong silver prices are generating ramped up production with a resulting increase in concentrate from mines with zinc as a major by-product. Among the beneficiaries of this development is the world's largest zinc metal producer, Nyrstar.
Although zinc prices have made solid gains to over 80-cents per pound in recent months and some mothballed smelters are being reactivated, Hallgarten metals analyst Christopher Ecclestone is not convinced the rebound in prices is firm.
Nevertheless, Balen, Belgium-based zinc and lead producer Nyrstar has become reanimated after what Ecclestone called "a traumatic twelve months," and announced Monday it has acquired a 19.9% interest in Ironbark Gold's "world-class Citronen zinc-lead deposit in northern Greenland."
Ironback believes Citronen is "one of the world's undeveloped zinc resources" with indicated and inferred resources of 56 million tons at 5.4% zinc and 0.65 lead.
For 3.5 million, Ironbark has agreed to grant Nyrstar a life of mine off-take agreement for 35% of the production once commercial production is achieved perhaps in three to five years.
The Ironbark acquisition comes only two weeks after Nyrstar announced it will acquire the East-Tennessee Zinc Mine complex from Glencore Group for US$126 million. The complex comprises three separate mines located within 20 miles of each other and within 250 miles of Nyrstar's Clarksville smelter and Gordonsville zinc mine complex.
In a statement, Erling Sorensen, commercial officer of Nyrstar who has been appointed to the Board of Ironbark, said, "We believe that the fundamental outlook for zinc is positive and this investment is a commitment to the long term sustainable future of our business and our position as a leader in the zinc industry."
Nyrstar now operates the world's largest zinc smelter and holds an unchallengeable position in terms of the smelting capacity in Australia, the U.S. and Europe, Ecclestone noted in an analysis published Monday. Hallgarten initiated coverage on Nyrstar Monday.
The company has recently resumed full production at Clarksville in the U.S. and Budel in the Netherlands, while its main Balen plant in Belgium is just coming out of nine months in care and maintenance.
Ecclestone called the reactivation "an important litmus test of the state of zinc markets."
Nevertheless, while Ecclestone admitted he has a fondness for zinc, it is not "a fondness that puts stars in our eyes that blind us to reality." While most efficient and low-cost miners are starting to break even or make a small profit at the 80-cents level, he noted, "We have heard NO bullish statements on zinc from major zinc players."
Instead, the types of miners who are ramping up production as the silver/lead/zinc combination producers where zinc is a byproduct, Ecclestone said. Meanwhile, he added, "Lead's price is rocking again, so these miners are firing on two out of three cylinders even if the zinc production is a breakeven prospect for them."
Despite what Ecclestone called "jarringly optimistic" global supply and demand projections made by the International Lead and Zinc Study Group, nonetheless, he advises zinc production "will turn strongly negative (maybe down 30%) in the light of the mothballing of so many mines."
"The longer the downturn goes on the more mothballed mines are unlikely return to production and their owners will probably face the death of a thousand cuts in the market." Ecclestone suggests zinc will need to stay around $1/lb "to tempt operators to pull the covers off their mines. To us this implies that zinc could make a relatively rapid rebound to the $1 zone on even the mildest of news signaling a rebound in stainless steel demand."
Ecclestone called lead "a good backstop to have" because of their enormous environmental impact "which makes existing facilities advantaged in that new facilities are unlikely to be created except in the most isolated locations..."
Hallgarten has initiated Nyrstar with a BUY rating with a 12-month target price of 11.30.
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IBG Price at posting:
16.0¢ Sentiment: Buy Disclosure: Held
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