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Century starts concentrate production amid renewed zinc price hopes

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Century starts concentrate production amid renewed zinc price hopes

New Century Resources Ltd. started zinc concentrate production at its Century zinc mine in Queensland, Australia, amid renewed expectations of commodity price upside as Managing Director Patrick Walta said the perception of a looming "wall of supply" to which his project contributed is unlikely to eventuate.

The company announced August 13 that it had demonstrated initial proof of concept for the large-scale flotation of ore from the Century tailings deposit through the existing processing facilities on-site by starting tailings slurry flotation, and it is now focused on optimizing concentrate quality through the zinc cleaner circuit, followed by zinc and silver recoveries and plant throughput.

Based on ore reserves, Century's estimated production capacity is 264,000 tonnes per annum of zinc and 3 million ounces per year of silver over an initial mine life of 6.3 years, though exploration is also underway across New Century's 1,800 square kilometers of tenements to expand that life.

New Century will spend the next 15 months refurbishing part of the project plant using cash flow from the operations to reach capacity by 2020.

Walta said that while the mine was initially producing 130,000 tonnes per annum of zinc metal, having refurbished another part of the plant after buying the mine in the first quarter of 2017, it was feared that the eventual ramp-up to full capacity would contribute to the "wall of supply" that partly accounted for London Metal Exchange-traded zinc's nearly 31% fall between February 16 and June 16.

Walta said fears of a U.S.-led trade war, along with the perceived looming "wall of supply," created a "shorter's delight" and zinc became "easy pickings" for the global sell-off that also hit other commodities.

Walta told S&P Global Market Intelligence that the compound annual growth rate of the US$40 billion-a-year zinc industry's demand has been 2% per annum for the last decade and is projected to stay that way for the next 10 years, with 60% of zinc used in galvanizing linked to steel. Half of zinc's consumption is also in China, whose middle-class growth is underpinning the commodity's upside potential.

While most of zinc's price drop has been associated with the U.S. trade wars, "it's reasonable to assume that's a terminal event, so under the assumption that there are no trade wars, there is good consistent growth based on global GDP," Walta said — a trend perhaps made more stark by zinc hitting 10.5-year highs in January, according to Reuters.

"Even at 2% per annum growth, that's another 287,000 tonnes a year of zinc metal of new supply that has to come just to facilitate demand growth, so you literally need a new Century coming online every year for the next 10 years just to maintain demand, let alone any supply drop-offs," Walta said.

Renewed hope

Walta said that while Century was "part of that [perceived wall of supply] problem," along with Gamsberg in South Africa, which is due to start up in September, and Dugald River in Queensland, which achieved commercial production in May, outside of those mines there is not a lot of major supply coming online in the next six years.

Citing research from Wood Mackenzie that analyzed probable zinc mines coming online over that time, Walta said that while they are all "fundamentally good projects," it seemed unlikely that some of them would ever enter production, particularly with some large-CapEx ones sitting within junior companies.

As an example, Ironbark Zinc Ltd. has been working on a Chinese feasibility study that was hoped to have lower CapEx for its Greenland Citronen zinc project, which now stands at US$514 million. However, the junior said July 30 that Chinese regulatory requirements and design changes had resulted in delays and increased costs, and it now doubts that a resolution can be achieved.

Ironbark is open to bankers, private equity and industrials undertaking off-balance sheet financing or ownership of the power and processing plants, mining fleet, ship loader, marshaling yard and fuel farm to potentially reduce capital costs by up to US$150 million.

"When we analyzed Wood Mackenzie's zinc price for 2017 compared to 2018, the peak moved to the right and up. So purely as a result of delays in what were perceived to be projects coming online, it's already started to have that effect," Walta said, explaining the new reality of price expectations for zinc.