Industry Trend Analysis - Zinc: Miners To Ramp Up Production In 2018 - FEB 2018


BMI View: Globally, mined zinc production growth will accelerate in 2018 as rising prices encourage miners to bring idled capacity back online following years of declining production or weak growth.

Global mined zinc production will ramp up in 2018, as strong zinc prices prompt miners to bring idled capacity back online. While some capacity taken offline over 2015-2016 was due to permanent mine closures, the return of some stalled capacity and new projects in key countries will drive growth over the coming quarters. We forecast global mined zinc production to increase by 3.0% y-o-y in 2018, to 12.4mnt, and edge higher to 14.7mnt by 2026.

Modest Rebound Ahead
Global Zinc Mine Production ('000 tonnes) & Growth (% y-o-y)
f = BMI forecast. Source: USGS, BMI

China

China's zinc production growth will decelerate due to declining ore grades and increasingly stringent environmental regulations. The conservation of minerals and increasing consolidation of mining industries outlined in China's 13th Five-Year Plan will weigh on zinc output in China. Additionally, the strong support for state-owned enterprises (SOEs) in the plan will ensure that China's zinc industry remains dominated by SOEs, with increasing consolidation of smaller miners. Since August 2017, operations at about 60% of zinc and lead mines in Sichuan province have been suspended due to ongoing environmental inspections. This is the fourth batch of environmental inspectors who have stationed themselves in eight provinces, namely Sichuan, Tibet, Qinghai, Xinjiang, Jilin, Zhejiang, Shandong and Hainan, which together accounted for 11.4% of China's mined zinc output in 2016. Despite higher zinc prices this year, Chinese zinc smelters have cut output due to tight concentrate supply, with the shortage expected to last into the next one to two years.

We forecast the country's zinc production to edge higher, from 4.6mnt in 2018 to 4.7mnt by 2026, averaging 0.3% annual growth. Despite this muted growth rate, China will remain the largest global producer of zinc by a wide margin, accounting for approximately 37% of total output in 2018. Dominant producers will include domestic miners such as Zijin Mining, which reported a 9.1% y-o-y uptick in zinc concentrate output, to 203kt over the first three quarters of 2017.

China To Remain Key Player
Global Zinc Mine Production By Country (%), 2018f
f = BMI forecast. Source: USGS, BMI

Australia

Australia's zinc sector will fail to recover from the H215 closure of Minerals and Metals Group's (MMG) Century zinc mine over the coming decade. Nonetheless, we forecast the country's zinc production to increase from 849kt in 2018 to 1.1mnt by 2026, supported by rising zinc prices and a solid project pipeline. Indeed, we have increased our production growth forecast for 2018 and 2019, to 8% and 6%, respectively, following Glencore's December 2017 announcement to restart the Lady Loretta zinc mine in H118. The mine will ramp up to full operating capacity by 2019. Additionally, Australia's key new zinc project, MMG's USD1.bn Dugald River, began production in November 2017 and will add an estimated 170kt of zinc annually at full capacity.

Project Pipeline To Support Long-Term Growth
Select Countries - Zinc Mines By Phase
Source: BMI Mines Database

India

India will increasingly drive global zinc production growth, as the country's key miner Hindustan Zinc Limited (HZL) implements a large-scale expansion plan. In the first half of FY2018 ended September 2017, the firm reported a 42% y-o-y increased in mined metal production (lead and zinc) to 452kt, led by a 54% increase in zinc production.

In H117, HZL received environmental clearances for the expansions at the Zawar and Sindesar Khurd mines. As such, we maintain a solid production growth outlook for the country, forecasting zinc output to increase from 715kt in 2017 to 1.0mnt by 2021. The company's Rampura-Agucha zinc-lead mine in Rajasthan is the world's largest zinc mine, with reserves of more than 110 mnt and a mine life of over 25 years. HZL, 64.9% owned by Vedanta Resources, accounts for approximately 90.0% of India's zinc output.

India To Clinch Title For Largest Zinc Mine
Global - 10 Largest Zinc Mines By Volume ('000 tonnes)
Source: Hindustan Zinc Company Report

Peru

We forecast Peru's zinc output to total 1.4mnt in 2018 and increase to 1.8mnt by 2026. Over H117, Peru's zinc production growth averaged 12.6%. While our forecast does not reflect Glencore restarting stalled zinc capacity in the country, the company's share of Antamina mined zinc output than doubled in H117 to 59kt due to a higher portion of copper-zinc ores (rather than copper only ores). Glencore holds a 33.8% stake in Antamina along with BHP Billiton, Teck Resources and Mitsubishi Corp. In Q317, Canada-based Trevali Mining reported a 9.3% y-o-y decline in zinc production at the Santander mine, to 16.7kt, however continues to advance the Magistral North ramp development to access higher-grade zinc-lead mineralisation. The Santander mine remains on track to produce 23.6-25.9kt in 2017.

Peru's zinc sector will experience steady output growth over our forecast period to 2021, on the back of rising prices and a strong project pipeline. Further, Peru's low-cost mining industry will attract foreign investment. For instance, in Q216, Votorantim Metais' subsidiary Minera Milpo purchased a 75% stake in the Shalipayco zinc project from Pan American Silver for USD15mn. While our forecast does not reflect Glencore restarting stalled zinc capacity in the country, the company's share of Antamina mined zinc output than doubled in H117 to 59kt due to a higher portion of copper-zinc ores (rather than copper only ores). We forecast Peru's zinc production to increase from 1.4mnt in 2017 to 1.6mnt by 2021, averaging 3.8% annual growth.

Global - Largest Zinc Projects By Capex
Country Mine Company Capex (USDmn) Notes
Source: BMI Mines Database
Greenland Kvanefjeld Greenland Minerals & Energy Ltd 1,316 Measured Resources: 143mnt; Mine Life: 37 years
Australia Dugald River Minerals and Metals Group 1,031 November 2017 - Minerals and Metals Group has produced first concentrate at the mine; Estimated Production: 170kt/yr; Reserves: 22.5mnt; Mine Life: 28years
Saudi Arabia Khnaiguiyah United Arabian Mining Company (50%) 890 Proved Reserves: 17.7mnt; Expected Production: 80kt/yr
United States Arctic Trilogy Metals 718 Estimated Production: 68.9kt/yr; Indicated Resources: 1.1mnt
Sweden Garpenberg Boliden 597 Ore production will increase to 2.5mnt; Proved Reserves - 12.5mnt
Algeria Oued Amizour Western Mediterranean Zinc Spa - WMZ 579 The project includes the Tala Hamza zinc deposit; Measured Resources: 30.6mnt
Greenland Citronen Ironbark Zinc 514 September 2017 - An updated feasibility study into the project has estimated a production rate of up to 200kt/yr of zinc and a mine life of 14 years; Measured Resources: 25mnt
Peru Accha Zincore Metals 346 Production start year: 2017; Estimated Production: 60kt/yr; Reserves: 10.6mnt; Mine Life: 11 years
Canada Halfmile-Stratmat Trevali Mining 327 Mine Life: 13years; Estimated Production: 53.1kt/yr; Indicated Resources: Halfmile (5.6mnt) and Stratmat (3mnt)
Peru Florida Canyon (formerly Bongara) Votorantim Metais 297 Measured Resources: 1.3mnt; Mine Life: 12.5years; Expected Production: 50.7kt/yr
Global Zinc Mine Production Forecasts (2016-2026)
2016 2017f 2018f 2019f 2020f 2021f 2022f 2023f 2024f 2025f 2026f
f = BMI forecast. Source: USGS, National sources, BMI
Global Global Zinc Mine Production, '000 tonnes 11,900.0 12,058.8 12,415.2 12,759.2 13,027.1 13,358.5 13,673.1 13,960.8 14,216.5 14,455.3 14,713.4
Global Global Zinc Mine Production Volumes, % y-o-y -7.0 1.3 3.0 2.8 2.1 2.5 2.4 2.1 1.8 1.7 1.8
Australia Zinc Mine Production, '000 tonnes 850.00 786.25 849.15 900.10 936.10 973.55 1,002.75 1,032.84 1,053.49 1,074.56 1,096.05
Australia Zinc Mine Production Volumes, % y-o-y -46.88 -7.50 8.00 6.00 4.00 4.00 3.00 3.00 2.00 2.00 2.00
China Zinc Mine Production, '000 tonnes 4,500.00 4,545.00 4,599.54 4,636.34 4,659.52 4,668.84 4,678.17 4,682.85 4,687.54 4,687.54 4,687.54
China Zinc Mine Production Volumes, % y-o-y 4.65 1.00 1.20 0.80 0.50 0.20 0.20 0.10 0.10 0.00 0.00
India Zinc Mine Production, '000 tonnes 650.00 715.00 782.93 857.30 938.75 1,027.93 1,120.44 1,221.28 1,318.98 1,424.50 1,538.46
India Zinc Mine Production Volumes, % y-o-y -20.83 10.00 9.50 9.50 9.50 9.50 9.00 9.00 8.00 8.00 8.00
Mexico Zinc Mine Production, '000 tonnes 710.00 728.46 748.13 769.08 791.38 815.12 843.65 860.52 873.43 882.16 886.58
Mexico Zinc Mine Production Volumes, % y-o-y 4.41 2.60 2.70 2.80 2.90 3.00 3.50 2.00 1.50 1.00 0.50
Peru Zinc Mine Production, '000 tonnes 1,300.00 1,404.00 1,446.12 1,489.50 1,519.29 1,564.87 1,627.47 1,684.43 1,734.96 1,769.66 1,813.90
Peru Zinc Mine Production Volumes, % y-o-y -8.45 8.00 3.00 3.00 2.00 3.00 4.00 3.50 3.00 2.00 2.50
United States Zinc Mine Production, '000 tonnes 780.00 717.60 746.30 768.69 753.32 783.45 775.62 760.11 767.71 779.22 794.81
United States Zinc Mine Production Volumes, % y-o-y -5.45 -8.00 4.00 3.00 -2.00 4.00 -1.00 -2.00 1.00 1.50 2.00