Zinc - One of the most strategic and attractive base metals on the planet.
Why Zinc?
Zinc is one of the world’s most important metals. It is the 4th most used metal, and it is essential to everything we build. Zinc is used in oil and gas and power-generation, military equipment, automotive and shipbuilding – as well as a million other things that we take for granted every day. Zinc is also a popular alloy and is even necessary to sustain life, with humans, animals and plants needing it for development and growth.
Even governments love zinc. Not only is it essential for military equipment, but it’s also a clever way to contribute to ‘green initiatives’ and score political points because zinc is recyclable. Zinc is a strategic priority because it is used to galvanize steel and it resists corrosion. This invaluable facet has made zinc the top performer among base metals this year.
What is Zinc used for?
Approximately 50% of the 12 million tons of zinc produced each year go to galvanization of steel where it is processed and applied to coat iron and steel to prevent rust. According to the International Zinc Association, Zinc could save the world over $300 billion annually in direct corrosion costs, and another $300 billion annually in indirect costs.
17% of zinc production goes into making brass and bronze, and the same amount goes into die-casting, or producing metals parts with molds. The remainder is used up by manufacturing, particularly for construction materials, and chemical compounds such as zinc oxide, which itself is present in everything from sunscreen to solar cells and nuclear reactors. It’s also big in fertilizer and multivitamins.
Zinc Supply & Demand
Iron ore, steel and aluminum may be high-demand base metals like zinc, but zinc has an attractive advantage for investors: Supply is fantastically tight and stockpiles are diminishing at a rapid pace.
China is the world’s biggest user of zinc. That’s because China spends more money on infrastructure than the U.S. and Europe combined. Last year alone, China spent $2 trillion investing in its infrastructure, and that number is growing by $300 billion each year.
Stockpiles are at multi-year lows and demand remains relentless. The supply squeeze is on, with China going through record amounts of zinc, India experiencing massive growth, and America planning to spend billions on infrastructure and military defense projects, zinc - more than at any time in history, is noticeably becoming the go-to metal.
In 2016, zinc demand became greater than the available supply for the first time in a decade. Accordingly, the price of zinc shot up over 97%. It’s interesting to note that during zinc’s last bull market run from 2004 through 2007, zinc prices rose 63% in 2005. The biggest gains actually happened in the following two years with zinc prices increasing 286%. These returns bested the first year’s gains by more than 4 times. Zinc miners saw their stock prices surge even more, with some companies advancing over 400%.
Mining in Peru & Open Pit Mining
Peru is politically friendly and also has deposits with some of the highest zinc grades in the world. Peru is also one of the best mining countries because its authorities understand the significance of the fact that half of its GDP comes from mining.
With many zinc deposits found deep underground, it’s important to highlight the differences with open pit / surface mining; a technique used to extract minerals like zinc from the earth in an open pit or burrow. It requires no tunneling or expensive construction of underground shafts, just earth moving machines. Since open pit mining requires much less infrastructure build out, the costs are generally much lower than traditional tunneling underground.
