Metals that have largely gone underappreciated for years are fully in the crosshairs of the commodity traders, institutions, mom-and-pop funds, retail investors and the like. That includes zinc, the metal used extensively in rust-proofing steel and in combination with copper to make brass, which has seen prices nearly double in the past two years to trade on the London Metal Exchange near $3,200 per tonne.
The rise in zinc prices, along with the fact that it sold two of its zinc mines in Africa, played a role in base metal giant Glencore (LSE:GLEN) deciding to fire up equipment at its Lady Loretta zinc mine in Queensland, Australia after being mothballed since October 2015.
Glencore is not getting aggressive in its zinc production, though, bringing Lady Loretta back to full production systematically over the next couple years, a move that should help keep a floor under zinc prices for the foreseeable future as demand increases.
As inventories hold near a nine-year low and two of the world’s biggest zinc mines were depleted, demand was expected to rise 2.1% this year to 13.85 million tons, with countries looking to stockpile the metal for re-building infrastructure and to support booming auto markets.
Depending on the analyst, zinc demand and prices are expected to rise going forward, with calls for a leveling sometime next year and others forecasting another seven years of bullishness. Whichever thesis an investor subscribes to (or somewhere in the middle), this is the most favorable market climate for zinc in a long time and even a "leveling" after finding a peak means that profitable zinc is possible.
In fact, all the signals point to a strained supply chain, no matter how rosy some analyst views are. This is further evidenced by occurrences lately of a market condition known as "backwardation," when spot prices climb over future prices, an anomaly that supports contracting supply amid strong demand.
It’s these favorable market conditions that has Zinc One Resources (TSX-Venture:Z) (OTC:ZZZOF) moving expeditiously forward with its Bongará project and the adjacent Charlotte Bongará project in the northern part of mining-friendly Peru.
While Peru may be the company’s primary focus, it has itself an enviable position with other properties as well, including the optioned Scotia Property in its home province of British Columbia, which recently was the subject of an NI 43-101 technical report showing an inferred resource estimate of 632,000 tonnes grading 7.6% zinc, 0.74% lead, 0.11% copper, 19.75 g/t silver and 0.28 g/t gold (at a NSR $75 U.S. cut/off) based upon historic drilling from 1960-1997.
Zinc One also has the Esquilache diverse-metals project in southern Peru. Last month, the company agreed to sell the project, comprising the historical Esquilache underground lead-zinc mine and adjacent Virgen de Chapi prospec, to Nubian Resources (TSX-Venture:NBR) for $125,000 in cash, $475,000 worth of NBR stock and Net Smelter Royalty payments.
The Bongara´ Zinc-Oxide Mine is among the highest-grade projects in the world with a historical Measured and Indicated resource of 1.01 million tonnes grading 21.61% zinc and historical Inferred resource of 209,018 tonnes at 21.18% zinc at a cut-off grade of 5.0%. To put that into perspective, consider that most zinc deposits today grade less than 6% zinc.
To say that Zinc One geologists are tripping over zinc at the project is not exactly hyperbole, with outcrops showing high-grades (up to 40% zinc) along a trending ridge over one kilometre in length.
Channel sampling by Zinc One has reinforced the historic findings, including an 8.1-meter long sample grading 47.7%, 31.92% zinc over 32.2 metres and 28.98% zinc over 51.2 metres. Additional results from channel sampling, highlighted by 19.7 metres grading 25.65% zinc and 32.50% zinc over a 3.8-metre depth, further indicate the Bongarita and Mina Chica areas of the project could host significant mineralization.
At Charlotte Bongará, early exploration suggests that the mineralized trend from the Bongará Mine runs right into the property. Reported intercepts have included 15 metres grading 29.5% zinc and 11.5 metres of 29.7% zinc.
To prove the resource, Zinc One has already inked an agreement with the community, received approval from the Ministry of Energy & Mines to suspend the closure of the mine, conducted channel sampling and received permits for 126 drill platforms where they can drill up to three holes from each pad, all since acquiring the mineral rights at the property late in June.
A new resource estimate is expected in the second quarter of 2018 with a preliminary economic assessment targeted for Q2 or Q3, milestones that should add substantially to corporate value.
Zinc One is aiming to see the Bongara´ Zinc Mine reach its potential after a teasing with 25,000 tonnes of production in 2007 and 2008 before being idled due to low zinc prices and the global financial collapse. Open pit mining activity was confined to only a 15-hectare footprint, a sliver of the 11,125 hectares of the project. A DSO (Direct Ship Ore) method was utilized for the roughly 150,000 tonnes of ore grading 20% zinc that was produced a decade ago. A DSO strategy, where buyers purchase minerals still in-rock, remains popular today and has even found its way into lithium production as a means to lock down supply wherever possible.
Subject to additional economic studies, Zinc One believes it can have the mine producing again in as little as 24 to 36 months, the ultimate milestone that has investors paying attention to what the drilling will define and how the economics play out as this junior looks to firmly stamp its name in the global zinc supply chain.
Technical traders will surely take note that after a climb from around a nickel per share last summer to a 52-week high of 90 cents in February, shares have consolidated about 50% and are still holding over their 200-day moving average. This type of upward and pull-back some movement is typically regarded as normal in a bullish chart, a chart that seems to be simply awaiting its next catalyst.
