By Leia Michele Toovey- Exclusive to Zinc Investing News
The US, China, and India are witnessing an economic slowdown. Data coming out of Japan shows that the economy there has entered into a recession in the third quarter as corporate spending and export demand slumped. The 15 countries that form the Euro zone are also in recession.
Right now, zinc is priced at around $0.54 a pound on the LME; at this value about half the world’s zinc is being produced at a loss, and up to a half million tonnes of capacity elsewhere is under threat of closure. It was only last January, zinc was priced at around $1.20 per pound. Goldman Sachs forecasts zinc to average only $0.63 a pound next year, citing a supply overhang in world markets. Lead is now trading at $1,170 per tonne down from its later winter peak of $3,400 per tonne. Since the beginning of October, lead and zinc prices have tumbled by more than 30 per cent causing almost all zinc miners and smelters to rack up losses while lead smelters are earning just fractional profits.
According to U.S. Treasury Secretary Henry Paulson, financial markets may be under pressure for months after a credit slump caused US$966 billion in losses and write downs since the start of 2008. The greenback is near a two-year high versus a basket of currencies of six trading partners. The dollar rose against the Euro and yen on Friday with speculation overseas investors are buying more of the safest US assets as the global economy enters a recession. Today, the dollar rose against the Euro to 1.2597 levels from 1.2650 in late New York trade.
Due to zinc and lead’s low prices many miners are underwater and therefore rethinking business strategies. OZ minerals may have no choice but to keep its loss generating Century Mine in operation because shut down costs would be too high. The world’s second largest zinc mine yielded 129,241 tonnes of contained zinc and 17,846 tonnes of lead in the last quarter. Oz Minerals has not ruled out suspending all or some production at the giant deposit in eastern Australia, but it is considering cutting staff and other costs before making a decision. Oz Minerals produces zinc, copper, gold and nickel in Australia and Southeast Asia. The firm has already has rescheduled operations at its Golden Grove mine in west Australia to reduce zinc output.
Teck Cominco (NYSE:TCK), owner of the worlds largest zinc mine, the Red Dog mine in Alaska, is suspending dividends, slashing capital spending and selling assets as it struggles under a massive debt load. The major zinc, copper and coal miner said the measures announced Thursday were “the first steps in implementing its comprehensive plan to reduce debt” taken on for the US$14-billion takeover of the Fording Canadian Coal Trust, Canada’s largest producer of coal for the steel industry. Teck said the dividend suspension will save $486 million next year. Along with a $730-million scale back of capital investment will come “other steps to reduce expenditures and increase cash flow.” Additionally, Teck plans a 20 per cent reduction in zinc production and an increase in power sales at its complex in Trail, B.C.
Interfax China reported that China’s fragmented lead and zinc industries were expected to undergo consolidation within the next five years as small sized miners and smelters were increasingly being forced out of business due to plummeting product prices. Booming lead and zinc prices in the last few years led to investment frenzy in the metal mining and smelting sectors. However, China’s ongoing industrial structure optimization, coupled with the current global economic downturn is likely induce a cool down in investments and accelerate consolidation.
Blue Note Mining reported Monday third quarter revenues were down 46 per cent. The Company cited low metal prices as the culprit behind net losses in the quarter, which ended September 30 at $117.3 million, or $0.32 per share. The losses are in spite of higher output at the mines, up 29 per cent from last year’s third quarter. Blue Note announced in mid-October it would idle its Restigouche open-pit mine 30 kilometers west of Bathurst and its Caribou underground mine 50 kilometers west of the city by Nov. 28, pending a rebound in zinc and lead prices.