Short-term outlook bullish for pricy zinc

Raymond Goldie of the investment firm Richardson Greenshields says the short-term outlook for zinc, which had been trading in the 95 cents (US) per lb range but recently slipped to as low as 82 cents and at press time stood at 85 cents , is bullish.

On the supply side, Goldie reports, the mining situation in Peru is not getting any better. The South American nation produces 10% of the world’s zinc (as well as 5% of the world’s copper and 5% of the world’s lead).

“Outside Peru, with no new additions to production, and with labor and technical difficulties continuing to plague the industry, there will be little or no increase in supply over the next few months,” he writes.

Demand for the metal remains strong, especially for its steel rust- proofing application. The Pacific Rim area is providing the largest growth in demand.

Demand currently exceeds supply, Goldie says, a situation marked by shrinking inventories and rising prices. The analyst continues to predict a zinc price greater than $1 during the first half of 1989. Second-half lag

By the end of the year, however, Goldie says the price may have dropped to 45 cents , with an average price for the year of 67.5 cents . (High grade zinc averaged 56 cents in 1988, 36 cents two years ago and 34 cents in 1986.) Going out on a limb, the analyst projects a 55 cents average price for 1990.

As part of his report, Goldie offers a list of junior mining companies with exposure to zinc:

Aber Resources (TSE) and Hemisphere Development (VSE), 50/50 partners in the Sunrise Lake property in the Northwest Territories; Audrey Resources (TSE), 70% interest in the Mobrun deposit in northwestern Quebec; Bunker Hill Mining (VSE), reactivated the Bunker Hill property in Idaho;

Canadian-United Minerals (VSE), exploring the Fireweed prospect in British Columbia; Canamax Resources (TSE), Mount Hundere property in the Yukon and a 24.5% interest in the Midway prospect in B.C.; Consolidated Callinan Flin- Flon Mines (VSE), 6.7% working interest in property at Flin Flon, on the Manitoba-Saskatchewan border;

Fairfield Minerals (VSE), Yukon prospects; Houston Metals (ME), Silver Queen property in British Columbia; Laramide Resources (VSE), Lara deposit on Vancouver Island; Noble Peak Resources (ASE), Crypto property in Utah; Redfern Resources (VSE), Tulsequah Chief prospect in B.C.;

Regional Resources (TSE), 51% of the Midway bet in British Columbia; RFC Resource Finance (VSE), exploring the old Metaline mine in Washington State; and, Trimin Resources (VSE), 24.5% interest in the Hansen Lake property in Saskatchewan. Resistance expected

Following up on one of its earlier reports dealing with higher prices for zinc, investment house Pemberton Securities reports “the supply-demand dynamics suggest some further price increases could take place in the near term, even though we feel the market is at high levels where considerable resistance can be expected.”

Supply-side problems listed by analyst G. E. Nutter are a recent force majeure declaration by Curragh Resources, which operates the lead-zinc-silver Faro mine in the Yukon, because of heavy snow on its Yukon/Alaska trucking route; possible output reductions which could result from slow-moving negotiations between Japanese smelting concerns and Australian concentrate supplier Mt. Isa Mines; increased demand by India; and the threat of shipment disruptions because of a union blockade of Outokumpu’s zinc refinery at Kokkola, Finland.

For the medium-to-longer term, the outlook is not as rosy. The surge in the usage of zinc as a galvanizing agent has reached the point where automakers in North America have been unwilling to accept higher prices for galvanized plate from steel producers, Nutter says. He adds that with the higher prices, substitution becomes a concern. Zinc supply has yet to become a major factor, he says.

Nutter projects a softening price for zinc during the second quarter, barring any further production and labor trouble.

Last week in this space we printed a forecast gold price for 1989 of $410(US) per oz by the London research team of Shearson Lehman Hutton. Compared with a couple of other firms, the estimate might be considered optimistically high.

British brokerage house James Capel sees gold averaging $350 this year, and possibly bottoming near $300 during the second half. The company is bullish on the gold price in 1990 and beyond, however.

And London-based Metals & Minerals Research Services, predicting a reduced bullion surplus, sees the 1989 price for the precious metal averaging $375.

Gold, trading in the $390-$395 range of late, averaged $437 last year in London.

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