Refinery Squeeze
January 25, 2008
– Comments (2)
An article on Mining Journal say that refinery charges on zinc concentrate are increasing dramatically. They were about $300/ton last year and are up 10% to $330/ton and some have even asked for as much as $360/ton.
This is going to be a double whammy for zinc producers that have already been hard hit by declining metal prices. Zinc has been projected to be in surplus for 2008 and then there are some mines that are at the end of their mine life closing that should tighten supply for 2009, although those projections do not take into account what a slow down in the world economy will do to the supply and demand.
Hudbay Mineral is fully vertically integrated so they refine their own concentrate and so they are a company that will only take a hit from the declining metal value, and that is a big hit. Additionally, they've had their profits artificially inflated by tax benefits that are ending, and they are one of the producers with a mine closing in the next year or two.
Zinifex has taken an enormous hit to their share price. They have some very nice grades in their mines, however, the decline in zinc prices means their gross revenue potential has declined considerably. Just a quick glance suggests their earnings should decline by as much as 1/2 to 2/3rds of 2007, provided zinc prices stablize.
Zinc price has declined to the point that some high cost producers may no longer be making ends meet. Zinc price is down to about $1/lb, far below projections on it for this year, of which the low end tended to estimate about $1.20/lb, and it is only January. With supply up and LME warehouse levels increasing, zinc is unlikely to average that $1.20/lb.
One thing about base metals, it is difficult to know the true market as hedge funds have manipulated the price and the warehouse store levels.
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