Industry Trend Analysis - Zinc: Production Growth To Gradually Accelerate - NOV 2017


BMI View: The global zinc concentrate industry will return to muted production growth in 2017, supported by improving prices and a solid project pipeline .

Global mined zinc production will return to growth in 2017, as increasing zinc prices encourage ramp ups. Major miners Glencore and Nyrstar's output cuts and the closure of MMG's Century mine in Australia and Vedanta Zinc's Linsheen mine in Ireland drove the decline in zinc output in 2016. Glencore, which suspended 500ktacross three countries, reported a 25% y-o-y decline in zinc output in 2016, to 1.0mnt.

As of Q117, Glencore restated there are no plans to bring back the idled capacity, however the possibility of restarts presents an upside risk to our mined zinc production forecast. The firm attributes the 90kt increase in 2017 production guidance to higher ore grades expected at the jointly owned Antamina mine in Peru. We forecast global mined zinc production to increase from 12.0mnt in 2017 to 13.3mnt by 2021, averaging 2.2% annual growth.

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. In 2016, China cut off power to - effectively shutting down - all lead and zinc mines in Huayuan county in Hunan province, citing safety concerns.

We forecast the country's zinc production to edge higher, from 4.5mnt in 2017 to 4.7mnt by 2021, averaging 0.7% annual growth. Despite this muted growth rate, China will remain the largest global producer of zinc by a wide margin, accounting for approximately 37.3% of total output in 2017. Dominant producers will include domestic miners such as Zijin Mining, which reported a 15.4% y-o-y uptick in zinc concentrate output, to 142kt in H117.

China To Remain Key Player
Global Zinc Mine Production By Country (%), 2017f
f = BMI forecast. Source: USGS, BMI

Australia

Australia's zinc production will return to solid growth in 2017, following a steep contraction in 2016 due to Glencore's curtailment of 380kt of zinc at the McArthur River and Mount Isa operations and the closing of MMG's Century mine. The subdued price environment influenced the former decision, while declining ore grades forced the latter. The Century mine produced 450kt in 2015, down from 465kt in 2014, accounting for approximately 27.3% of Australia's total output.

Nonetheless, Australia's longer term zinc production growth will be supported by vast reserves and projects such as MMG's USD1.5bn Dugald River deposit. MMG expects the project to begin production in H118, with annual output of 160kt of zinc. Moreover, Attila Resources' acquisition of the Century mine and possible restart of operations poses an upside risk to our production forecast, pending further details on the plan and timing. We forecast Australia's zinc output to increase from 723kt in 2017 to 878kt by 2021.

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

India

India will drive global zinc production growth, as the country's key miner Hindustan Zinc Limited (HZL) implements a large-scale expansion plan. In FY2017 ended June, the firm produced 756kt of mined zinc, representing a 1.6% y-o-y uptick as the Rampura Agucha mine transitions to underground operations.

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

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 - Select Zinc Projects
Company Mine Capex (USDmn) Year
na = not available. Source: Company announcements, BMI
Australia Minerals and Metals Group (100%) Dugald River 1,500 2018
India Hindustan Zinc Various 1,300 2017
Saudi Arabia Khnaiguiyah Zinc Copper Mining Co (100%) Khnaiguiyah 870 na
Greenland Greenland Minerals & Energy Ltd (100%) Kvanefjeld 810 2017
South Africa Vedanta Resources (74%) Gamsberg 630 2018
Australia Independence Group (100%) Stockman 585 na
Algeria Western Mediterranean Zinc Spa - WMZ (100%) Oued Amizour 579 na
United States Aquila Resources (100%) Back Forty 407 na
Peru Zincore Metals (100%) Accha 300 2017
Canada Trevali Mining (100%) Halfmile 274 na
Mexico Industrias Penoles (100%) Rey de Plata (Guerrero) 268 2017
Global Zinc Mine Production Forecasts (2014-2021)
2014 2015 2016 2017f 2018f 2019f 2020f 2021f
f = BMI forecast. Source: USGS, National sources, BMI
Global Global Zinc Mine Production, '000 tonnes 13,300.0 12,828.7 11,895.1 11,980.7 12,307.1 12,647.0 12,911.8 13,250.0
Global Global Zinc Mine Production Volumes, % y-o-y -0.7 -3.5 -7.3 0.7 2.7 2.8 2.1 2.6
Australia Zinc Mine Production, '000 tonnes 1,560.00 1,600.00 850.00 722.50 762.24 811.78 844.25 878.02
Australia Zinc Mine Production Volumes, % y-o-y 2.63 2.56 -46.88 -15.00 5.50 6.50 4.00 4.00
China Zinc Mine Production, '000 tonnes 4,930.00 4,300.00 4,500.00 4,545.00 4,599.54 4,636.34 4,659.52 4,668.84
China Zinc Mine Production Volumes, % y-o-y -1.40 -12.78 4.65 1.00 1.20 0.80 0.50 0.20
India Zinc Mine Production, '000 tonnes 706.00 821.00 650.00 715.00 782.93 857.30 938.75 1,027.93
India Zinc Mine Production Volumes, % y-o-y -10.97 16.29 -20.83 10.00 9.50 9.50 9.50 9.50
Mexico Zinc Mine Production, '000 tonnes 660.00 680.00 710.00 728.46 748.13 769.08 791.38 815.12
Mexico Zinc Mine Production Volumes, % y-o-y 2.64 3.03 4.41 2.60 2.70 2.80 2.90 3.00
Peru Zinc Mine Production, '000 tonnes 1,320.00 1,420.00 1,300.00 1,404.00 1,446.12 1,489.50 1,519.29 1,564.87
Peru Zinc Mine Production Volumes, % y-o-y -2.22 7.58 -8.45 8.00 3.00 3.00 2.00 3.00
United States Zinc Mine Production, '000 tonnes 832.00 825.00 780.00 717.60 746.30 768.69 753.32 783.45
United States Zinc Mine Production Volumes, % y-o-y 6.12 -0.84 -5.45 -8.00 4.00 3.00 -2.00 4.00