Zinc’s status as the best-performed metal of 2016 has failed to translate into the share price boost that many were expecting, with the lack of a local zinc champion, a shortage of standout projects and the investor scars of zinc busts past keeping a lid on investor enthusiasm for ASX-listed zinc stocks.
The price of zinc surged last year by more than 65 per cent, and at one point in November touched its highest point since 2007, finally delivering on years of industry expectation that a series of major mine closures would strangle supply.
But the investor response has been somewhat subdued, with several Australian-listed zinc stocks posting only modest rallies despite the leverage they offer to higher zinc prices.
Joe Treacy, managing director of zinc explorer Marindi Metals and a co-founder of former zinc miner Kagara, said the zinc industry in a way had itself to blame for the tepid response to the price rally to date.
“The problem with zinc in the past has been it’s promised a lot but never delivered, so people are being a bit sceptical about following it in,” he told The Australian. “We’ve been calling the zinc recovery for about 10 years so sooner or later we had to be right. But you can’t defy the fundamentals forever.”
The big Century zinc mine in Queensland shut its doors in late 2015 after exhausting its reserves, with the Lisheen mine in Ireland following suit just months later.
While the resulting supply tightness appeared to drive the surge in zinc prices over the course of 2016, Mr Treacy believes the price rally still has a way to go given the shortage of meaningful new sources of supply under construction.
“The closures have happened and it’s taken longer than people anticipated for that shortness to work its way through the market, but that’s worked its way through now and you’re starting to see that in falling smelter charges, the stockpiles are the lowest they’ve been in nine years and they continue to fall,” he said. “All the signs are pointing to a good zinc market to come.”
Marindi’s share price has climbed from less than 1c to just over 2c in the past year, but that has arguably more to do with its burgeoning lithium exploration arm rather than its zinc aspirations.
Red River Resources has been one of the few ASX-listed zinc plays to meaningfully cash in on the zinc price surge, raising $30 million late last year in an oversubscribed equity raising.
The cash will help fund a restart of its Thalanga zinc mine in Queensland, part of the suite of mines put up for sale following the collapse of Kagara in 2012.
Another former Kagara asset, the big but undeveloped Admiral Bay zinc deposit in northern Western Australia, is also being pursued by junior player Metalicity. The Perth-based company is looking for a partner to join it at Admiral Bay, which ranks as the fourth-largest undeveloped zinc deposit in the world.
But the big project’s failure to get off the ground in the past appears to be weighing on Metalicity, which has largely traded sideways over the past 12 months.
Metalicity managing director Matt Gauci says past corporate collapses in the Australian zinc space means investors here tread carefully.
“A lot of Australian investors have got so much scar tissue with zinc through Pasminco blowing up and all this stuff historically that it’s quite difficult for them to get back into it,” Mr Gauci said.
“But there’s a massive disconnect in Australia for zinc, no doubt. It’s the third most used metal in the world and zinc and lead is a $65 billion (a year) industry. It’s not small.”
The lack of a single prominent locally listed zinc miner has also hurt the smaller companies’ prospects. Past zinc booms have had local champions such as MIM Holdings, Pasminco and its successor Zinifex as focal points for investors, Mr Gauci said, but today those looking to play in the space must choose from an array of smaller development plays with often uncertain or risky paths to production.
After years of waiting for the zinc price to rally, Ironbark Zinc managing director Jonathan Downes isn’t wasting time pushing ahead with the company’s Citronen deposit in Greenland. The project has always suffered from investor concerns about its remote location, but Ironbark has persevered through zinc’s time in the doldrums and recently secured a mining permit from the Greenland government.
“It’s been a long wait, longer than we’d initially planned for sure,” Mr Downes said of zinc’s prolonged price slump.
“I’d felt like the boy who cried wolf when it came to the zinc price, but fortunately now it’s started to come to fruition. It’s had a fantastic run, and I think that’s an extremely supportive environment to try to build a giant zinc project.”
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