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The zinc price is on the rise, but which companies are set to benefit the most?

Zinc is back in fashion and zinc companies are on the march. But which ones are worth a look?

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Zinc miners are now coming out of the shadows

Balkan Zinc looks set to be the first zinc miner to list in London - if not quite in living memory, then at least in a long, long while.

For a long time, zinc was the metal perennially out of favour. Even during the height of the mining boom it lagged, and promoters around town found the zinc slog harder than almost any other.

One major zinc producer, Nyrstar, pretty much left the mining business altogether. And in February 2016 Horsehead Holding Corp (OTCMKTS:ZINCQ), a billion dollar zinc recycling company, filed for Chapter 11 protection in the US.

But things are changing fast.

The imminent listing of Balkan Zinc, which looks set to come to the market in mid-February, is one sign of that. But there are other signs too.

Ferrum Crescent (LON:FCR) has lately got into zinc, Hannan Metals (CVE:HAN) has acquired the Kilbricken project in Ireland, ZincOx (LON:ZOX) is still alive, just, and signing new deals in Korea, while Avrupa (CVE:AVU) is actively looking for deals on the Iberian pyrite belt to complement its existing position.

Meanwhile, Turkish conglomerates are nosing about looking for opportunities, and other companies too are looking to take positions in the metal.

Why is this?

Simple - after long years when supply was easily equal to demand, zinc is now slipping into deficit.

Zinc stocks, as measured by LME inventories, fell in early January, and stood at 419,800 tonnes. These are levels not seen since the end of the last mining boom, and the lack of inventory has been accompanied by a corresponding rise in the price which, at the current US$1.23 per pound, is higher than it’s been since 2008.

The first sign of this recovery was an increasing interest in zinc EFTs, for example the ETFS Commodity Securities Limited ETF (LON:ZINC), which is now trading at a five year high, but which first really moved at the end of 2015.

Then, during 2016, momentum began to gather, although the parlous state of the wider mining equities markets was still acting as something of a drag. It wasn’t until late in the year that investors really began to wake up to the potential uplift available in zinc.

And by that time, many canny companies had already taken significant positions. Thus Hannan and Balkan are already in place with exploration and development projects. The same is true of Zinc of Ireland (ASX:ZMI), which has several projects in Ireland, Rathdowney Resources (CVE:RTH), which has just announced a C$5mln placing, BRM Group(LON:BMR), which has just issued a positive update on its Zambian projects, and Ironbark zinc (ASX:IBG), which is moving forward with its projects in Greenland.

On the North American side, the zinc companies have become increasingly active too. Thus Nevada Zinc (CVE:NZN) is attracting interest in its Lone Mountain project, including from out of Europe, Arizona Mining (TSE:AZ) is moving ahead with the Taylor deposit and Callinex Mines (CVE:CNX) has hit a three year high of C$0.65 on the strength of exploration success at Pine Bay in Manitoba.

This latter project is situated adjacent to the famous Flin Flon project of Hudbay Minerals (TSE:HBM), which is now boosting production to meet the new market strength. Hudbay shares have more than tripled in value over the past year.

At the top end of the zinc market, Glencore (LON:GLEN) continues to be dominant, while First Quantum (TSE:FM) and Boliden (TSE:BLS) also provide major contributions to global supply.

Nevertheless, that supply is diminishing as major Irish and African mines run down, and new mines look to be slow in coming on stream.

To be sure, Vast Resources PLC (LON:VAST) has recently started production at Manaila in Romania, and other of the juniors may also add a small contributions in due course, in particular mom and pop operations out of China.

But the central dynamic remains the same.

And broker RFC Ambrian spells it out succinctly: “The last three years have seen significant production capacity reductions through mine closures, including Vedanta’s Lisheen mine and MMG’s Century mine (which itself accounted for approximately 4% of global production.”

Some of this production fall has been a tactical or strategic response to weaker pricing. But by no means all. RFC Ambrian also cites “the natural end of older mines” as a significant cause.

And the really big companies are not at the moment interested in redressing the looming deficit. “Zinc is not a strategic focus for the major mining companies, suggesting that the availability of capital for large-scale new projects will be limited,” says Ambrian.

Which brings us back to the smaller players.

As investors search around for ideas on how to play zinc, and as the mining sector as a whole comes back into favour on the back of the Trump stimulus, the zinc juniors are likely to be in increasing demand.

Old projects will start to appear on the radar again.

One such might be the Black Angel zinc mine in Greenland, now owned by private company ARC Exploration. Once-upon-a-time this was held by Angus & Ross, Aim’s proxy zinc play. But the project ran into difficulties and was taken into private hands.

Work has not stopped though. Eight weeks of field activities in the summer of 2016 involved ground geophysics and induced polarisation work conducted by the well-known boutique Irish consultancy Aurum Exploration Services. Then, in late June, 11 new holes were drilled, a number of which intersected mineralisation.

Meanwhile, Anglesey Mining (LON:AYM) still has its large Parys polymetallic project in Wales, and this may get reactivated in the face of further zinc price strength.

Across the water in Ireland, Connemara Mining (LON:CON) is still slip-streaming in the exploration wake of its major partner Teck (NYSE:TECK), while Lundin (TSE:LUN) has now departed and left the field open for Hannan.

Other juniors that are worth a look are: Inca Minerals (ASX:ICG), which has the Riqueza and Cerro Rayas zinc-silver-lead projects in Peru, Zincore Metals Inc (TSE:ZNC), which also has projects in Peru, Trevali Mining, which (TSE:TV) has operations in New Brunswick and a mine in Peru, and ScoZinc Mining Ltd (CVE:SZM) which owns zinc exploration in Nova Scotia.

Also on the radar: Red Crescent Resources (TSE:RCB), which has projects in Turkey, InZinc (CVE:IZN), which has the Indy zinc project in British Columbia and the West Desert project in Utah, Energia Minerals Limited (ASX:EMX), which has the Gorno underground zinc project in the north of Italy, and Consolidated Zinc (ASX:CZL), with its assets in Mexico.

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