Industry Trend Analysis - Lead: Global Production To Remain Stagnant - AUG 2017


BMI View: Global lead mine production growth will slowly accelerate over 2017 driven by a slight rise in prices in relation to 2016. However, during our forecast period from 2017-2021 production rates will largely stagnate due to a subdued price recovery and a weak global project pipeline. Australia and Peru will be the relative growth bright spots from 2017-2021, supported by stronger project pipelines across minerals, in which lead is often mined as a by-product.

Lead Mine Production Forecast
2015 2016 2017f 2018f 2019f 2020f 2021f
e/f = BMI estimate/forecast. Source: National sources, BMI
Global Global Lead Mine Production, '000 tonnes 4,950.0 4,820.0 4,860.7 4,940.0 4,996.8 5,047.5 5,093.9
Global Global Lead Mine Production Volumes, % y-o-y 1.6 -2.6 0.8 1.6 1.1 1.0 0.9
Australia Lead Mine Production, '000 tonnes 652.00 500.00 490.00 519.40 529.79 535.09 535.09
Australia Lead Mine Production Volumes, % y-o-y -10.44 -23.31 -2.00 6.00 2.00 1.00 0.00
China Lead Mine Production, '000 tonnes 2,340.00 2,400.00 2,412.00 2,419.24 2,424.07 2,426.50 2,426.50
China Lead Mine Production Volumes, % y-o-y -2.50 2.56 0.50 0.30 0.20 0.10 0.00
Peru Lead Mine Production, '000 tonnes 316.00 310.00 313.88 317.01 320.18 323.39 326.62
Peru Lead Mine Production Volumes, % y-o-y 13.67 -1.90 1.25 1.00 1.00 1.00 1.00
United States Lead Mine Production, '000 tonnes 367.00 335.00 333.32 328.33 318.48 304.14 285.90
United States Lead Mine Production Volumes, % y-o-y -3.17 -8.72 -0.50 -1.50 -3.00 -4.50 -6.00
Global Production Growth In Stagnation
Global Lead Mine Production (kt) & Growth (%)
e/ff = BMI forecast/estimate. Source: USGS, BMI

China

China's lead production will remain under pressure over the coming years on the back of low prices and government-led consolidations over environmental concerns. We forecast China's lead production growth to stagnate at an average of 0.2% from 2017-2021. This figure represents a significant slowdown on 1.3% average growth witnessed from 2012-2016. Despite, this China will remain far and away the dominant global lead producer, with output forecast to reach 2.42mnt in 2021.

Within China, China Polymetallic Mining will be among the dominant producers over our forecast period to 2021. Despite the firm's significant market share, the company will continue to suffer from slowly recovering lead prices. During H116, lead output at the firm's flagship Shizishan mine fell by 97.8% as a result of flooding and repairs needed at the extensive damaged areas within the tunnels. In addition, tightening environmental regulation could deter domestic lead output and new lead mining projects from coming online. Lead pollution is particularly harmful to the environment, and lead poisoning is one of China's fastest-growing health problems. Furthermore, the government has embarked on a mining reform with the objective of cleaning up the local mining sector, which is due to last until June 2017. As such, all lead and zinc mines in Xiangxi Tujia and Miao Autonomous prefecture have been closed as of H216.

China To Remain Largest Producer
Select Countries - Lead Mine Production ('000 tonnes)
e/f = BMI etimate/forecast. Source: BMI, USGS

United States

The US's lead production growth will continue to contract as low prices and rising production costs erode profit margins, making operations unsustainable. Subdued prices will force miners to cut capital expenditure and scale back or even halt operations, thus curbing lead mine supply growth. Furthermore, high operating costs and environmental regulations will place US lead miners increasingly at a disadvantage to producers such as Mexico, Peru, Australia and China. We forecast US lead production to fall from 333.0kt in 2017 to 286.0kt in 2021, averaging a y-o-y decline of 3.1%. Lead production in the country has declined an average of 14.2% over the first three months of 2017.

The US lead industry will see increasing competition from recycled products as environmental awareness translates into sustainable development. For instance, Aqua Metals' AquaRefinery recycling facility in Nevada produced the first ever Aqua-refined lead in November 2016, which has the capacity of producing 120 tonnes per day by 2018. The plant uses Aqua-refining technology to sustainably recycle lead-acid batteries, looking to replace tradition lead smelters. They are now looking for non-equity funding for four to five facilities totalling 700tonnes/day.

Currently, the largest producer of lead in the country is The Doe Run Company, with six mines in production in Missouri representing the large part of production in the country while the second largest producer is Teck Resources. Both companies will witness a decline in production; with Teck estimating output over 2017 will amount to 112.0kt, a 13% y-o-y decrease, while Doe Run will see declining ore grades in its Missouri mines.

US Down As Peru And Mexico Outperform
Select Countries - Lead Production Growth (% y-o-y)
f = BMI forecast. Source: BMI, USGS

Australia

Lead production in Australia will post the highest growth out of the four biggest producers from 2017-2021, as it bounces back from successive growth declines of -10.4%, -23.3% and -2.0% in 2015, 2016 and 2017, respectively. Despite a decline of 2.0% forecast in 2017, we expect production growth to recover from 2018 onwards as lead and zinc prices gradually improve. We forecast lead production in Australia to register annual average growth of 1.4% during 2017-2021, in comparison with a 3.5% decline over 2012-2016.

The country will benefit from a strong project pipeline on the back of the world's largest lead reserves, at 35.0mnt as of 2016, or 40% of global reserves. Production in the country will increase from 490.0kt in 2017 to 535.0kt by 2021. We expect MMG's USD1.4bn Dugald River mine, set to be commissioned by H218, to be the bright spot in lead production over the coming years.

Outperforming Despite Slow Future Growth
Australia - Lead Mine Production
e/f = BMI forecast. Source: USGS, BMI

Peru

Peru's lead sector will experience modest production growth, supported by a strong project pipeline across minerals, in which lead is often mined as a by-product. We forecast Peru's lead production to increase from 314.0kt in 2017 to 327.0kt by 2021.

Peruvian firms Cia Minera Milpo, Volcan Cia Minera and Sierra Metals will remain the largest lead producers in Peru. Over 2016 Peru experienced a slight 1.9% decline in output, as producers struggled to recover from the low price environment. Despite early-year floods hampering production from major mines, with force majeur being declared by both Milpo and Volcan, we forecast the country's lead production to pick up in 2017 and grow by a 1.1% annual average during 2017-2021.

Furthermore, traditional precious metal miners Bear Creek Mining Corp and Hochschild Mining are also developing multiple projects. Given that silver is often found alongside zinc and lead, precious metal miners will likely increase mined lead output in the coming years. Bear Creek's Corani and Santa Ana deposits, while intended primarily as silver mines, have significant lead reserves. We expect mine production at Santa Ana to begin towards the end of our forecast period after technical analysis is completed and the requisite permits acquired.

Select Countries - Key Lead Mine Projects
Country Mine Primary Company Total Allocation CAPEX (USDmn)
Source: Company announcements, BMI
Australia Bohemia Mincor Resources (100%)
Australia Bonaparte Mincor Resources (100%)
Australia Sunny Corner Argent Minerals (70%)
Australia Lewis Ponds TriAusMin (100%)
Australia Hera Aurelia Metals (100%)
Australia Reward Teck Resources (51%)
Australia Lewis Ponds Heron Resources (100%)
Australia Gawler Ranges Terramin Australia (100%)
Australia Manbarrum TNG Ltd (100%)
Australia Walford Creek Aeon Metals (100%)
Australia Sorby Hills Kimberley Metals (75%) 100
Australia Woodlawn Heron Resources (100%) 112
Australia Kempfield Argent Minerals (100%) 100
Australia Dugald River Minerals and Metals Group (100%) 1,500
Australia Lennard Shelf Meridian Minerals (100%) 75
Australia Potosi Perilya (100%) 58
Australia Menninnie Musgrave Minerals (75%)
China Liziping China Polymetallic Mining Ltd (90%)
China Menghu China Polymetallic Mining Ltd (90%)
China Baiganhu Hami Jiatai (100%)
China Gaocheng Silvercorp Metals (95%)
Peru Huampar Trevali Mining (100%)
Peru Hilarion Milpo (100%)
Peru Bongara Milpo (70%)
Peru Yauricocha Sierra Metals (82%)
Peru Shalipayco Milpo (50%)
United States Ambler NovaGold Resources (100%)
United States Red Mountain Atlas Resources (100%)
United States Hermosa Arizona Mining (100%)