If you're looking for the tightest supply picture on the commodities scene, look no further than one base metal that is set for the biggest bull run of the decade. It's essential to everything we build on this planet, yet we don't have enough and the demand surge will be massive.
It's not one of the metals that have just exited their super-cycle—like lithium or cobalt—behind the single-minded electric vehicle (EV) boom; this is the rock of ages. This is zinc.
It's used in everything from oil and gas and power-generation, to military equipment, automotive and shipbuilding—and a million other things that we take for granted every day.
It started in 2016, but this year will be the 'pinch point' of zinc supply, with mine closures and production cuts outweighing new output, says Wood Mackenzie Analyst Jonathan Leng.
The downside is that stockpiles are at multi-year lows. Two major mines shut down last year, but demand remains relentless. The supply squeeze is on, and it's painfully tight. China is going through record amounts of zinc, and America plans to spend billions on infrastructure and military defense build-ups mean that zinc—more than at any time in history—is the number one go-to metal.
Zinc will decide the fate of progress. It will define the economic future, and it will even shape the military capabilities of the world's superpowers.
Already in 2016, zinc smelting demand outpaced mine production, and end use demand outpaced smelting production and mine production combined.
As you'll see below, this is the beginning of the raging bull market.
During Zinc's last cycle in 2005, the price surged when inventories dropped below critical levels--and that's exactly where they're headed now.
And right at the edge of this fantastic supply gap, is where new exploration enters the picture in a dramatic way—especially for investors eyeing a cheap and easy way into one of the most strategic metals on the planet.
Zinc One (TSX-V:Z; OTC:ZZZOF) just completed an acquisition in Peru that gives it one of the highest-grade zinc deposits in the world, with immediate exploration and future production potential.
Peru is one of the best mining countries in the world because its authorities understand the significance of the fact that half of its GDP comes from mining. It also has deposits with some of the highest zinc grades in the world.
Zinc One's flagship Bongará project in Peru is remarkable. Not only does it boast exceptionally high-grade zinc, but it's right on the surface and recently in production.
Essentially, we're looking at an ambitious junior miner who has slipped quietly into one of the most promising zinc projects on the planet right when the supply squeeze has everyone wondering how we're going to feed the military, industry and Asian urbanization.
Here are 5 reasons to keep a close eye on Zinc One (TSX-V:Z; OTC:ZZZOF)
#1 The Edge of an Epic Bull Market
Zinc is the 4th most-used metal in the world, yet it still flies under investor radars. About half of the 12 million tons of zinc produced each year go to galvanization of steel, feeding the giant companies like Valmont Industries (NYSE:VMI) and AZZ Inc. (NYSE:AZZ).
In other words, 50 percent of all zinc used is processed and applied to coat iron and steel to prevent rust. Zinc could save the world over $300 billion annually in direct corrosion costs, and another $300 billion annually in indirect costs, according to the International Zinc Association.
Another 17 percent goes into making brass and bronze, and the same amount goes into die-casting, or producing metals parts with molds. The remainder is used up by manufacturing, particularly for construction materials, and chemical compounds such as zinc oxide, which itself is present in everything from sunscreen to solar cells and nuclear reactors. It's also big in fertilizer.
Zinc is a strategic priority because it is used to galvanize steel and it resists corrosion. This invaluable facet has made zinc the top performer among base metals this year.
These are the bull factors for zinc:
- China is desperate for more zinc to make possible some very ambitious infrastructure plans that include the building of the biggest megacities the world has ever seen, and a mind-boggling "One Belt, One Road" project to create a modern-day Silk Road through Asia and Europe, with an extensive network of highways, railways and underwater tunnels.
- The strength of the steel product process is now driving increased steel production, which means an increase in zinc demand.
- Massive growth in Indian megacities will also drive the zinc explosion.
- Trump's pledge to spend $1 trillion on infrastructure projects over the next 10 years, including the rebuilding and repair of America's crumbling roads, highways, bridges, airports, tunnels, and railways. This is a massively commodity-intensive policy future.
- Governments LOVE zinc. Not only is it essential for military equipment, but it's also a clever way to contribute to 'green initiatives' and score political points because zinc is recyclable.
Iron ore, steel and aluminum may be high-demand base metals like zinc, but zinc has an attractive advantage for investors: Supply is fantastically tight and stockpiles are diminishing at a rapid pace.
Last year alone, two major mines were depleted and closed down, taking 630,000 tons of annual zinc resources offline. Australia's Century Zinc mine and Ireland's Lisheen mine were both shuttered. And the top zinc producer, Glencore, shuttered two depleted mines in Canada in 2012, taking one million tons of zinc offline. In 2015, Glencore shut down two mines in Australia and Peru, and in early May it said it had no plans to restart them.
Now that supply has virtually disappeared and new demand is about to hit a long-running fever pitch, Zinc One (TSX-V:Z; OTC:ZZZOF) is positioning itself right in the heart of zinc mining in Peru. We have about 2 million tons left in global inventory, and it will dwindle fast. And this year alone, we are already set for a 500,000 ton gap in supply.
With zinc inventories projected to fall below critical levels next year, prices are already responding upwards. In 2016, zinc prices gained a whopping 78 percent before dipping a bit in early 2017, but prices are already regaining momentum. Even with this massive last-year gain, analysts pretty much across the board see room for a surge.
#2 One of the Highest-Grade Mines in the World
When Zinc One (TSX-V:Z; OTC:ZZZOF) acquired Forrester Metals Inc. in May, it acquired a rare and unique zinc asset.
The Bongara Mine project, with significant exploration potential along some 2 kilometers strike length, will likely be one of the highest grade zinc projects in the world. Quite possibly it will be THE highest-grade zinc project in the world once it's back in production.
This is one of the most remarkable aspects of this play; especially when you consider that most of the new zinc projects fall far short of high-grade quality compared to the existing mines of the major producers.
So, we have a junior explorer that's automatically ahead of its peers, and in league with the biggest miners. This is a rare opportunity that isn't likely to be repeated.
Bongara's zinc grade is over 20 percent, which puts it—quite literally—off the charts.
And there's more blue sky potential and management expects an update soon to increase the historic resource estimate. Previous drilling and trenching suggests there is the potential for this mineralization to continue for double the length, which could markedly add to the current size of the project.
This doesn't even consider the property Zinc One has right next door—the Charlotte Bongará Project. This is the first time these two properties will have the same operator, giving it a much better advantage than it had historically. Here the grades of zinc become even more tantalizing. In 2008, this project had near-surface drill intercepts of zinc oxides that included 29.5 percent Zn across 15.5 meters, 26.1 percent Zn across 12.5 meters, 29.7 percent Zn across 11.5 meters.
#3 Low-Cost, Easy Access—Get Ready for Production
If the high grade wasn't enough to impress. Consider this: The Bongara Mine and its corresponding Charlotte Bongara mineralization are sitting on surface and are easy to process from a metallurgical perspective.
Previous production in 2008 demonstrated a recovery rate greater than 90 percent, and with the resource on surface it looks like Zinc One isn't going to need an expensive underground operation. So far, the deposit is easily accessible on the surface. But even so, the high-grade nature of the zinc ore could even be mined by a more expensive underground mining operation.
The objective here is to re-start mining ASAP, and Forrester already laid the ground work. Existing permits are in place and advanced permitting is already in process, and drilling permits are expected by July.
#4 Big-League Management with Access to Capital
Management is everything in the junior mining world, and this is where Zinc One really shines. Without exceptional management, this junior wouldn't be sitting on what may prove to be the highest-grade zinc mine in the world.
The top management of Zinc One has over 100 years of combined experience in mine design, permitting, construction and operations.
It's got deep networks to raise capital and negotiate further acquisitions in the space. When it comes to creating shareholder value, this team is all in.
Zinc One's CEO Jim Walchuck—is convinced that Bongara will be a game-changer, and he knows what he's talking about. He has over three decades of mining experience. He put the Balyanhulu mine in Tanzania into production for Barrick Gold (NYSE:ABX).
Walchuck is now partnering with Greg Crowe, the CEO of Silver One Resources, and formerly the legendary figure behind Entrée Gold (NYSEMKT:EGI), which he led to major success on the world stage. He's a dealmaker extraordinaire, and Zinc One could be his next home run.
The business plan for Zinc One (TSX-V:Z; OTC:ZZZOF) is forward-thinking. Walchuck and Crowe plan to achieve near-term cash flow from the Bongara Mine Project and advance the Charlotte Bongara project while acquiring other advanced zinc assets. This is the making of a metals baron.
#5 This is the Critical Time
Right on the edge of a raging bull run for zinc, and a consensus on tight supply and surging demand, Zinc One is ready to put an uber-high-grade zinc mine into production at breakneck speed.
We expect a substantial amount of news flow from this company in the coming days, weeks and months, including announcements on permits, the drilling of up to 400 holes, and potential increases in resource estimates.
With production slated to begin in 36 months—or less—market value could gain a premium.
We love the people behind the company, including management. We like Peru, we like the fact that this is a former mine which will help shorten the time to production, and we like the fact that this group has easy access to money. And we love zinc!
This is the first time we've seen something this rare: A junior explorer with an off-the-charts grade of zinc, gunning for almost immediate production, and perfect timing right after zinc bottomed out and the panic began for securing supply of a metal that cuts across countless strategic industries.
Zinc has come of age, and we don't know of any other zinc story out there with this kind of catalytic news flow in the pipeline.
And, in our opinion, the best pick--the one with the biggest potential upsides right now--is Zinc One (TSX-V:Z; OTC:ZZZOF).
Honorable Mentions on the zinc playing field:
- Lundin Mining (TSX:LUN): Operating in Chile, Portugal, the U.S. and Sweden, Lundin expects to double its current zinc production at Neves-Corvo in Chile.
- Hudbay Minerals (TSX:HBM; NYSE:HBM): Operating in North America, most notably in Manitoba, a Q1 operational indicated a potential increase in zinc production at its Lalor mine by just under 20,000 tonnes this year.
- Trevali Mining (TSX:TV): Trevali has two operations that are producing zinc commercially in Peru and New Brunswick and there may be some news coming in the pipeline for a second project in New Brunswick as the company awaits early results from an economic assessment. But new assets acquired from giant Glencore also should be a catalyst.
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