Zinc Shows a Silver Lining as Exchange Stocks Fall to Lowest Level in Decades

With stocks on the three main exchanges (Shanghai Metals Market, COMEX and LME) at record lows, prices are expected to remain elevated, potentially changing the economics of zinc production for Blue Moon Zinc Corp. (OTC: BMOOF) (TSX-V: MOON) (MOON Profile), Hecla Mining Company (NYSE: HL), Teck Resources Ltd (NYSE: TECK), Glencore plc (OTC: GLNCY), and Trevali Mining Corp. (TSX: TV).

To everything, there is a season, two years ago, disinvestment and mine closures bedeviled the industry. In 2015, the Australian-Chinese concern MMG Limited (HKEX: 1208), announced the shuttering of its mining operations at Century in Australia. The Century mine was Australia’s largest zinc mine and the third largest in the world. In 2014, it produced 465,696 tonnes and accounted for around 3.5 percent of global zinc output. And in 2015, by the time mining ended in August, it had yielded about 345,000 tonnes of zinc in zinc concentrate after processing. Vedanta Resources also closed its Irish Lisheen mine in 2015. Lisheen was Europe’s second-largest zinc mine with a capacity of around 175,000 tons. Lisheen’s closure reduced global supplies by another 1.3 percent. And Glencore exacerbated the supply constraint after it announced it would cut output from mines in Australia, Peru and Kazakhstan totaling around 500,000 metric tonnes. This removed another 4 percent from global supply in 2015. Those supply cuts have been boosting prices ever since.

With the outlook on zinc in favorable territory, both senior and junior exploration companies are dusting off previously shuttered projects.

In a recent interview, Blue Moon Zinc Corp. (TSX.V: MOON) (OTC: BMOOF) CEO Patrick McGrath retraced the history of the Blue Moon, USA deposit, which dates back to the Second World War. From 1943-1945, the resource was mined by Hecla Mining Company, whose efforts produced 55,656 tons of 12.3% zinc. The mine lay dormant until the early 1980s, when Imperial Metals completed approximately 33,000 feet of diamond drilling. Thereafter, Westmin Resources, now Boliden, one of Europe’s largest zinc producers, undertook about 57,000 feet of diamond drilling, calculated a mineral resource and commenced engineering, metallurgical, hydrological and environment baseline studies. In addition, Westmin obtained a permit and approval of a reclamation plan from Mariposa County for a shaft and certain underground development. By 1991, the resource was in new hands: being explored by Barrick (Lac), who completed approximately 20,000 feet of drilling. Consequently, Blue Moon, USA stands on the shoulders of well-established and well-qualified operators, who have done a lot of the development work.

Blue Moon emerged from the amalgamation of asset disposals by two other junior exploration companies, the first deriving from Yukon Zinc, which had acquired the Blue Moon deposit from Boliden Limited. The second followed a 2007 spinout by Selwyn Resource of its zinc assets. The company, previously known as Savant Explorations Ltd, announced its name change to Blue Moon Zinc Corp on July 5, 2017 (http://nnw.fm/6DxmD).  

The Blue Moon project, located in Mariposa County, California, is estimated to have close to 375 million pounds of zinc in the indicated category, and about 400 million pounds on an inferred basis. A high recovery rate (95%) and its location in an area with well-developed infrastructure and access to labor and other resources gives Blue Moon, USA an indisputable commercial advantage over other junior zinc companies. Moreover, the management and advisory team includes two executives, Lutz Klingmann and Larry O’Connor, with extensive experience either building a mine from scratch or re-starting a mine and dealing with the regulatory process.

Lutz Klingmann is the former CEO of Golden Queen, who successfully permitted the open-pit, heap-leach Soledad Mountain gold mine in California. He brings extensive experience in permitting and building mines, including building the Minto mine currently owned by Capstone Mining Corp. (TSX:CS). Lawrence O’Connor is the former VP Operations at Western Goldfields (now New Gold) where he restarted the Mesquite Mine in California. He is also a former general manager of Eldorado Gold Corp’s La Colorada Mine and during his tenure there completed the feasibility study and permitting required for expansion. Blue Moon’s current CEO, Patrick McGrath, is a CPA-CGA (Chartered Professional Accountant), with 20 years of experience in financing and executive roles in junior public companies. As VP Finance of Adriana Resources Inc. (now Sprott Resource Holdings Inc.), he raised $50 million in equity and debt during his tenure. Together officers and directors hold close to 22 percent of Blue Moon’s equity.

Blue Moon also holds interests in the Yava Property in the Mackenzie Mining District, Territory of Nunavut, approximately 450 kilometers northeast of Yellowknife. The Yava Property consists of one mining lease of 1,304 hectares and 16 unpatented mineral claims that taken together cover 4,449 hectares.

The silver lining on zinc should galvanize Hecla Mining Company (NYSE: HL), which although primarily focused on silver and gold, unearths substantial quantities of zinc ore in its exploration activities. The company is a leading, low-cost silver producer with operating silver mines in Alaska (Greens Creek), Idaho (Lucky Friday), and Mexico (San Sebastian) and is a gold producer with an operating mine (Casa Berardi) in Quebec, Canada. Its Greens Creek and Lucky Friday mines have reported large proven and probable zinc reserves.

In zinc, as in general, the rich get richer. Top producer Glencore (OTC: GLNCY), with output of around one million tonnes of zinc concentrate annually, has struck ‘gold’ in its joint venture with BHP Billiton, Teck Resources and Mitsubishi. The Antamina copper pit in Peru appears to enclose zinc-heavy ore that has already produced an extra 60,000 tons of zinc over the past 12 months.

And Teck Resources (NYSE: TECK), the world’s No. 3 producer (Hindustan Zinc is at No. 2) continues its run of good luck. At its Red Dog operation in Alaska, the largest zinc pit in the world, a vein of hard-to-refine but zinc-rich rock with ore holding about 24 percent zinc (compared to 14 percent in the pit as a whole) has been discovered.

Meanwhile, Trevali (TSX: TV.TO) announced on August 31 it had acquired a portfolio of zinc assets from Glencore and some of its subsidiaries, which include an 80% interest in the Rosh Pinah mine in Namibia, a 90% interest in the Perkoa mine in Burkina Faso, an effective 39% interest in the Gergarub project in Namibia, and an option to acquire a 100% interest in the Heath Steele project in Canada.

As the global economy continues its rebound, the demand for zinc is forecasted to grow. The metal is mainly used to galvanize iron and steel to prevent rusting, essential in infrastructural projects. In addition, supply is way behind demand. In a June 2017 report, the International Lead and Zinc Study Group (ILZSG) found that the ‘worldwide market for refined zinc metal was in deficit during the first five months of the year while total reported inventories declined over that same time frame,’ according to Metal Miner (http://nnw.fm/qCp5K). It looks like zinc is starting to show its true color.

For more information on Blue Moon Zinc Corp. please visit:Blue Moon Zinc Corp. (TSX.V: MOON) (OTC: BMOOF) 

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