re: zfx = dog now? - mvale copy of part of article from Kitco website 10/2/06.
it has been posted here before but you may have missed it. It s important to understand that zinc does not add significantly to the price of the end product.
-----Not only are there not enough projects in the pipeline to meet demand. The economics of planned projects continue to degrade. Oil, electricity, even giant tires for mining trucks are all in short supply. More critically, experienced geologists and miners are an aging group and tough to find. To top it off, mining regulations are more rigid than ever before with stringent environmental and aboriginal concerns pushing out development timelines even further.
On the demand side, Asia is the key player, with their hyper-growth expected to drive demand in the zinc market. In fact, growth is now expected to be closer to 4% per year, rather than the 1.5% or 2.5% currently modeled.
Zinc has few substitutes and could easily take out its’ old highs without too much dislocation in the economy. It contributes only a small portion of the end cost for the products it is used in. For example, the average car uses about 17 pounds of zinc. At ten times today prices zinc would only add an extra $170 dollars to the cost of a car.
A slowdown in the U.S. is always a factor when considering base metal prices, but America uses only about 11% of the world’s zinc. Furthermore, World population is growing at an exponential rate, creating more people thirsting for their first taste of Western living standards. North America and it’s housing market could affect base metals prices in the short term, but the future will see Asian economies much less dependent on exports. The ramifications of this inflection point will go far beyond base metal demand, but that is beyond our scope here.
Currently there are a lot questionable valuations for mining companies and zinc miners are no exception. I would look for a quality senior and mid-tier producer along with juniors with proven management and decent land packages. With the price of zinc rising, these companies should do well over time-----------
hope you find it enlightening.
ZFX
zinifex limited
