PALM BEACH, Florida, April 18, 2018 /PRNewswire/ --Marketnewsupdates.com News Commentary
The investing world is scrambling to prepare for a global trade war on the heels of last month's steel tariffs. Providing exceptions for only Canada and Mexico, President Donald Trump's steel tariffs have resulted in other countries (i.e. China) announcing their own tariffs on U.S. goods. While this may seem like bad news for investors, some industries, like zinc, have seen domestic producers change from 'Overweight' to 'Buy' ratings on leading investment research sites like The Wall Street Journal. With investment options limited by uncertainty, interest in zinc could potentially rise quickly as investors look for safe-havens to invest in to weather the storm. Some zinc miners that could experience significant share price movement during an upcoming trade war include Trevali Mining Corp. (TSX:TV), Teck Resources (TSX:TECK-A) (NYSE:TECK), Callinex Mines Inc. (TSX-V:CNX) (OTC:CLLXF), Glencore PLC (OTC:GLCNF) (LSE: GLEN) and Vedanta Resources PLC (OTC:VDNRF).
Looming Trade War Puts Upward Pressure On Zinc Price
Many industries are experiencing downward pressure amidst concerns of a global trade war, but the zinc market looks set to trend upwards. Already hitting a decade-high earlier this year, TD Securities is now "bullish" on the outlook of zinc prices. The investment bank has just revised its forecasts for the next two years, raising its 2019 estimate to US $1.75 a pound and 2020 estimate to US $1.50 a pound. Previous estimates were US $1.45 and US $1.30 respectively. If Zinc prices continue to rise as TD Securities research indicates, then significant flows of capital could move to zinc companies and in turn creating an opportunity for equity investors.
Zinc is a vital component used to produce a huge range of products. This includes consumer goods such as cars and electronics, as well as industrial applications such as steel coatings for infrastructure projects to prevent the steel from rusting. Reuters reports that $3.7 trillion must be invested in infrastructure every year to meet demand, and the U.S. alone is considering a $1 trillion spend to improve infrastructure this year.
The new import restrictions could now send the U.S., the world's largest steel importer, into a demand frenzy for zinc, especially from its neighbor, Canada. The U.S. already imports 16% of its steel from Canada, but U.S. manufacturers could urgently look to replace 75% of the steel that they import from outside the continent to avoid extra costs. This could ignite a surge in demand for zinc from Canada.
Domestic Zinc Mining Projects May Benefit From Trump's Policies
One miner with a significant head start in the zinc supply chain is Callinex Mines Inc. (TSX-V:CNX) (OTCQX:CLLXF). The company is an example of a zinc company that may benefit from an increase in zinc prices, and a shift towards North American-based sources of zinc. They currently hold a potential world-class zinc mine in New Brunswick, Canada.
Callinex Mines Inc.'s Nash Creek project is being advanced as a potential open-pit mine. These open pit mines have historically been easier and cheaper to develop than the underground mines that make up 80% of the world's zinc mining operations. The company recently announced results from a new resource estimate at its Nash Creek deposit in the Bathurst Mining District of New Brunswick. These results estimated the indicated portion of the mineral resource increased to host 963 million pounds of zinc equivalent mineralization, an increase of 74%, along with the inferred portion which hosts an additional 407 million pounds of zinc equivalent mineralization within the inferred category, representing a 385% increase from an earlier estimate.
This increase was based on the recently announced exploration results from Callinex. Another zinc company with aggressive exploration activities include Glencore, whose stock has almost doubled since last year. Callinex Mines Inc. expects to publish a maiden Preliminary Economic Assessment next month to demonstrate the potential economic viability of the Nash Creek deposit.
Zinc Price Set To Peak
Zinc prices already hit a ten-year high earlier this year, but that may be just the beginning. Analysts at CRU Group forecast that zinc price will reach another peak by mid-2018, averaging US$1.70 per pound in Q2 and US$1.52 per pound for the year. Similarly, Citi analyst Max Layton expects a jump in prices to around US$1.72 to US$1.81 per pound. "The zinc price in the next three to six months is the best we're going to see for the next three to five years," he said.
While zinc producers are set to embrace potentially higher investor interest this year, only a few zinc stocks could have significant growth potential. Some leading Canadian zinc miners include Trevali Mining, with a market cap of over $1 billion, and Teck, with a market cap valued near $20 billion.
However, both companies may potentially be overvalued on the heels of previous investor interest in the zinc industry. This places Canadian mining firm Callinex Mines Inc. in a unique position. The company has a market cap of $15.7 million and a potential world-class North American based mine. This unique selling proposition may intrigue zinc investors interested in a project with high potential upside.
Other Companies Actively Mining Zinc
Glencore PLC (OTC:GLCNF) (LSE: GLEN.L) - Glencore is considered the biggest zinc producer in the world, with its operations based mainly in Australia. This year, the company intends to restart phased production at its Lady Loretta mine, with 100,000 tonnes of production expected in 2018 and an additional 60,000 tonnes in 2019. By 2020, Glencore expects to be producing 18% more zinc than in 2017, as Lady Loretta runs at full capacity and a new project in Kazakhstan comes on stream.
Vedanta Resources PLC (OTC:VDNRF) - Vedanta subsidiary Hindustan Zinc is the world's second-largest zinc producer. Currently, Hindustan operates the world's largest zinc mine, Rampura Agucha, located in Rajasthan, India. Earlier this year, it commissioned two additional mills in Rajasthan to match the growing zinc demand in India.
Trevali Mining Corp. (TSX:TV) - Trevali is a zinc-focused base metals company operating four mines: the Santander mine in Peru, the Caribou mine in New Brunswick, the Rosh Pinah mine in Namibia, and the Perkoa mine in Burkina Faso. As part of its acquisition of the Namibia and Burkina Faso mines from Glencore, Glencore now holds a 25.6% stake in the company.
Teck Resources (TSX:TECK) (NYSE:TECK) - Teck is a diversified resources company focused on copper, metallurgical coal, zinc and energy. The company's zinc operations are mainly based in Alaska at the Red Dog mine. Last year, Teck produced 659,000 tonnes of zinc in concentrate, which was more than its 2017 production guidance.
An Opportune Investment Window On Zinc
With an increasing demand for zinc, and recent trade tariffs on steel, domestic producers of metals like zinc may benefit from the movement of capital from industries that are negatively affected by tariffs. Under these circumstances, zinc companies like Callinex Mines Inc. (TSX-V:CNX) (OTC:CLLXF) have a window of opportunity to secure a commanding position in North America's zinc market.
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