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Message: Possible junior zinc takeover targets
Possible junior zinc takeover targets
A supply crunch in zinc is predicted by leading analysts and some miners have already said they're on the hunt for acquisitions leaving open the question of which juniors might get taken out.
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Author: Kip Keen
Posted: Wednesday , 17 Oct 2012
HALIFAX, NS (MINEWEB) -
It wasn't so long ago, as reported by Reuters, that Lundin Mining told the press in Sweden that it was on the prowl for zinc and copper acquisitions. While you're never going to get too many specifics about potential targets from a miner, Lundin did give some rough parameters of what it was after. Lundin CEO Paul Conibear said it was interested in copper and zinc mines - especially in Europe, Canada and Mexico with 30,000 to 70,000 tonnes metal production a year. He also signalled Lundin was ready to take a pretty quick shot. "We are going to be very disciplined, but when we find something for the right price, we will act quickly and aggressively," Reuters quoted Conibear as saying back in late September.
This hunger for base metals, zinc especially, is not all that surprising. It is shaping up to be a good year for zinc hunting and in that Lundin's pursuit is probably not alone in donning a camouflage jacket and loading its gun with cash, among other kinds of powder. A key theme that has emerged as far as base metals go is a current overabundance of zinc, depressing its short term price, but a medium to longer term supply issue. As Mineweb writer Dorothy Kosich reported earlier this year, Scotiabank's Patricia Mohr, a commodities specialist, said "Zinc may represent the next big base metal play. Zinc will shift into ‘deficit' (at latest by 2014) due to ongoing demand growth in the face of significant global mine depletion in mid-decade." The supply crunch is chiefly predicated on the closure of a few mines around the world: Brunswick 12 in Canada, Century in Australia and Lisheen in Ireland, Mohr has pointed out. Yet, as covered in these pages, there has not been a concomitant flurry of activity to replace such mines. On this point Mineweb's Geoff Candy quoted RBC Capital Markets as saying: "The most interesting bit of all this is that none of the majors are investing significantly in zinc."
Yet analysts predict a ripening zinc market in a few years time. Mohr gave the possible zinc deficit some real world numbers at the Prospectors & Developers Association of Canada Conference in March this year, predicting zinc would hit around $1.40 a pound by mid-decade. Of course, if you're a base metal miner, and if you hold to the above supply crunch scenario, you aren't going to want to buy zinc assets come 2014-2015 at such prices when it is going for well under C$1 per pound now. Indeed, as Lundin's Conibear made it clear: the miners are looking for assets. Stefan Ioannou, a Haywood Securities analyst that focuses on base metals, put the situation in zinc miners such as Lundin are facing this way: Though at the moment zinc warehouses are overflowing, "the guys are sitting around just scratching their heads wondering what to do about the mid to long term." There just aren't that many zinc juniors to takeover, especially producing ones. This would suggest Lundin, and perhaps others such as Hudbay, have a limited field of opportunity outside exploring new projects or expanding existing operations in shoring up production or betting on improving zinc prices by acquiring juniors.
So I asked Ioannou which advanced-stage juniors might make a hypothetical takeover target list for miners such as Lundin looking to boost production relatively quickly. In the course of our conversation, Ioannou singled out: Trevali Mining, Capstone Mining, Nevsun Resources, Sunridge Resources, Canadian Zinc and Donner Metals as names that might be on a list of potential takeover targets for the likes of Lundin. (And note: Ioannou said he doesn't own shares in the junior companies we spoke about, though he does cover all the names above except Trevali and Canadian Zinc.)
Putting it near the top of his list, Ioannou pointed out that in Trevali you get two zinc-polymetallic mines ramping up to full production (both around 2,000 tonnes per day): Halfmile in New Brunswick and Santander in Peru. In addition, Trevali has a couple other zinc projects at an advanced stage in the same countries. On what Ioannou called a "pretty short list," he added "Trevali for sure."
Capstone Mining
Primarily a copper producer, it also churns out significant zinc as byproduct at its mines in Mexico and the Yukon (respectively called Cozamin and Minto). In its latest quarter it produced 23 million pounds of copper in concentrates along with 4.1 million pounds zinc at respectable cash costs under C$2 per pound copper. Further, as Ioannou noted, anyone thinking of taking over Capstone would also be eyeing its 70 percent stake in the huge Santo Domingo copper project in Chile, which also comes with a major Korean partner (KORES) that owns the remaining 30 percent.
Nevsun Resources
While best known for its Bisha mine in Eritrea where Nevsun has been producing gold for a couple years now, operations are to shift into copper production next year and then into zinc ore thereafter. As such, Ioannou figured it "would probably be on the takeover list."
Sunridge Gold
Indeed, Lundin has shown an appetite for Eritrea, Ioannou pointed out, having already invested in Sunridge before, which, following in Nevsun's footsteps, is advancing copper-zinc-gold-silver projects in Eritrea that have yielded strong economics in scoping studies. There is "a fair bit of zinc in this story," Ioannou pointed out.
Canadian Zinc
It owns the past-producing Prairie Creek zinc-lead-silver-copper project in the Northwest Territories. Though Ioannou noted permitting is not yet in the bag here, he likes the look of its high-grade deposit. In all, Canadian Zinc reports 5.4 million tonnes @ 10.8 percent zinc, 10.2 percent lead, 160 g/t silver and 0.31 percent copper in measured and indicated resources, with about the same tonnage again at similar grades in inferred resources.
Donner Metals
This might be a tougher buy, but Ioannou didn't rule it out. Donner has a 35-percent stake in the Bracemac-McLeod project - otherwise owned by Xstrata - that is supposed to hit initial production in early 2013 at an average 2,500 tonnes per day rate of production. Proven and probable reserves are 3.7 million tonnes 9.6 percent Zn, 1.26 percent Cu, 28.25 g/t Ag and 0.43 g/t Au. The 35 percent stake might be "attractive to a Lundin," Ioannou said, though were offers to come, "Xstrata could trump anything pretty quickly."
http://www.mineweb.com/mineweb/view/mineweb/en/page66?oid=160329&sn=Detail&pid=66
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