In fact, ex-China zinc mine supply is going to be very dependent on GlencoreXstrata since it has a stake in the top three sources of new supply in 2014. One of those mines, Perkoa in Burkina Faso, was slated to add 65Kt to supply this year. This is the reason the news on 14 February was so interesting.
Blackthorn Resources, a joint venture partner with GlencoreXstrata in the Perkoa mine, announced that GlencoreXstrata had submitted a business plan considering, amongst other things, putting the mine on care and maintenance in response to current trading conditions. Blackthorn Resources plans to “constructively challenge”
GlencoreXstrata’s review and aims to have a final plan for the mine by the end of March. In the meantime, Blackthorn Resources has suspended open pit operations (which produce only lead and gold) because of weak metal prices and “unacceptable” financial results.
Whether or not this mine is put on care and maintenance is important because the slim margin between new zinc mine supply and closures/attrition leaves very little slack should new supply not perform. All of this suggests the zinc market is increasingly vulnerable to disruptions and slippages. Indeed, in January our equity analysts lowered their forecast for 2014 GlencoreXstrata production from 1.56Mt to 1.446Mt which is 10% below guidance provided by GlencoreXstrata at the investor day in September 2013.
Pretty interesting because this could mean that underground is profitable.
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