Global Zinc Supply Outlook 2015 2020 Claire Hassall CHR Metals Metal Bulletin 19 th Zinc and its Markets Seminar Helsinki
Discussion topics Features of CHR s forecasts the business cycle and China s economic and zinc demand growth prospects over the next 5 years Mine production and projects inside and outside China Zinc smelting capacity and projects Concentrate market balances inside and outside China Is there a zinc mine supply gap in the next 3 5 years? Slide 2
Global economic developments Global growth exhibits a strong cyclical pattern Major business cycles run 8 to 9 years China is not immune to cyclical forces Next normal business cycle downturn forecast for 2018 Slide 3
With reasonable Chinese demand growth assumptions, no major imminent supply gap Slide 4
Global zinc mine production kt contained zinc Slide 5
Developments in Chinese zinc mine production Modernisation/development of mining has been slow, lagging behind smelters but changes now evident Problem of under capitalisation in mining being addressed now by longer mining leases More stringent environmental requirements Re organisation and reallocation of mining rights leading to fewer larger mining/dressing operations More systematic exploration and mine planning increasingly evident Chinese mine production expected to continue to grow (note: official production figures are over stated) Slide 6
Global zinc mine production kt contained zinc Slide 7
Mining challenges Average grades at existing mines are falling though zinc equivalent grades may not be subject to same attrition Probable new mines zinc grades slightly higher than existing mines Possible new mines zinc and zinc equivalent grades lower than existing mines Rising environmental costs permitting, closure planning, tailings, water, etc Concentrate quality and marketability mercury, selenium, manganese, cadmium Project finance Political issues Slide 8
Zinc grades at existing mines declining lead & silver holding up Excludes Penasquito (gold) and Talvivaara (nickel) mines with very large reserves/resources but low zinc grade Cut off grades in reserve calculations influenced by recent past prices Slide 9
Where are the mine projects? Significant projects are being advanced in all regions (estimated output) Australia Dugald River 205kt Zn 20kt Pb 2017 Russia Kyzyl Tashtyg Ozernoye 85kt Zn 10kt Pb 300kt Zn 55kt Pb 2014/2015 2017/2018 Indonesia Dairi 100kt Zn 55kt Pb 2018 Peru Hilarion 125kt Zn 20kt Pb 2018 S Africa Gamsberg 250kt Zn 20kt Pb 2018 USA Lik 140kt Zn 45kt Pb 2019 Algeria Tala Hamza 160kt Zn 40kt Pb 2019 Greenland Citronen 150kt Zn 12kt Pb 2020 Not all these projects will be developed in this time frame, output may change and some may have significant obstacles ahead However, this is only a selection of major projects many smaller ones may also be developed Slide 10
Prospects for zinc mine supply outside China There is widespread expectation of a significant shortfall in zinc and lead mine supply within a few years but the onset of a shortfall continues to be delayed now 2018 or 2019 The definite closure of a number of large mines in the period 2012 2016 underpins this view CHR Metals agrees that mines will close, but not that markets face a large shortfall in supplies Slide 11
Changes in concentrate quality can smelters cope? Not all by product elements in concentrates are negatives silver, indium, germanium etc can provide additional revenue if recovered Higher penalty elements in new concentrate supplies will require investment at smelters including use of new technology Loss of low iron feeds as mines close already being addressed China may increase quality restrictions on concentrate imports Slide 12
Zinc smelting outside China has not been a growth industry Very few new zinc smelters have been built outside China in recent years India is the exception There have been some modest expansions Since 2010 six zinc smelters have closed One, perhaps two, of these may reopen but both are small One more smelter will close this year treating secondaries currently but these materials will be smelted elsewhere Main reasons for closure have been economic Some smelter expansions now planned but more needed to meet future demand for zinc outside China Slide 13
Developments in Chinese refined zinc production Average size of zinc smelters increasing, with elimination of small older plants well advanced Modern smelting technologies being introduced along with increased capacity to recover by products Improvements in domestic mining providing more consistent quantity and quality to local smelters Secondary sources of feed important and usage of EAF dust derived oxides growing ageing vehicle fleet will increase this source of secondary zinc units More stringent environmental requirements Slide 14
Final comments Next business cycle slowdown and China s economic transition point to slower demand growth over the next 3 to 5 years Existing concentrate surpluses will help to meet shortfall in supply when major mines close Zinc mine supply gap only critical with high final demand growth projections There are many mine projects in the development pipeline but some represent significant changes in ore and concentrate qualities Will involve investment further technology enhancement/improvements at mine projects and smelters Slide 15
In depth analysis of the global lead and zinc industries Regular market commentary and detailed forecasts Confidential market research assignments Focus on Chinese lead and zinc industry developments CHR Metals Limited Godalming, Surrey United Kingdom Tel: +44 1483 424442 Claire.hassall@chrmetals.com Slide 16 CHR Metals Ltd Xi an Representative Office Yulang International Room 11321 No 77 Jiefang Road, Xincheng District Xi an, Shaanxi 710004, PR China Tel: 029 87432148 Fax: 029 87432148 16