EDITOR: | August 1st, 2016

InvestorIntel Report: Galaxy a lithium star; Nevada Zinc bullish; Coal defies critics

| August 01, 2016 | No Comments

Only a very small percentage of lithium exploration companies will actually ever get to the stage of having something that represents a potential commercial resources — not my words but those of Tim Richards of the Perth office of global accounting firm Deloitte. That comment came as part of a special report compiled for the annual Diggers and Dealers shindig (Australia’s more modest version of PDAC) that opened Monday in Kalgoorlie, the West Australian gold mining centre.

Before we get to Richard’s comments, we should note the mention in the report compiled for Diggers and Dealers concerning InvestorIntel member Galaxy Resources (ASX: GXY): it came in top of all West Australian mining stocks for share price growth in the year to June 30. GXY stock rose 1,555%, taking its market capitalization over the 12 month period from A$40 million to A$662 million.

Deloitte said it was no surprise that Galaxy took out their high growth award, as the company owns the Mt Cattlin spodumene-tantalite mine in the state. It also has the Sal de Vida lithium and potash brine project in Argentina and the James Bay lithium pegmatite deposit in Quebec.

In his general comments on lithium, Tim Richards makes it clear that he is not totally sold on the more bullish forecasts for lithium demand growth. “Only time will tell whether the take up of the EV is more or less than forecast,” he writes. “The potential for ‘more’ is certainly creating high expectations. Again, while it remains uncertain, these expectations are not without some foundation as the world looks to the use of clean energy.”

He cites the following examples of developments:

  • In late 2015 a requirement was set in China that all new residential buildings with parking spaces be fitted with charging stations for electric vehicles. Large parking buildings and parking lots are similarly to be equipped.
  • The continuing speculation in China about a air pollution levy to narrow the cost between EVs and traditional vehicles.
  • In June Norway proposed new laws to ban sales of petrol and diesel vehicles by 2025. This legislation is expected to be enacted by the Norwegian parliament now the major parties have reached agreement.
  • In April Germany announced a €1.2 billion incentive package to boost EV sales, offering consumers up to €4,000 in rebates.
  • The U.S. government offers rebates for EV purchases of between $7,500 and $10,000.

Zinc bound for better times?

Speaking of vehicles, the Chinese news agency Xinhua reported last week that a record number of cars had been recalled in the first half of the year — 8.8 million of them, in fact. While airbag defects was the major problem area, Nevada Zinc Corp. (TSXV: NZN) informs us in its latest presentation that low zinc use in automobiles made in China is causing recalls. Zinc is used to galvanize steel on those parts of car bodies that are prone to corrosion. The average car made in America consumes 37lb of zinc. China clearly has to follow suit.

Zinc hit $2,243/tonne on Friday at the London Metal Exchange. The zinc price has risen more than 50% since its January low following several mine closures. The zinc squeeze is a result of the low level of zinc exploration for several decades; this means there have not been enough projects ready to go as older, worked out mines closed. China’s MMG is seeking to acquire zinc deposits in Peru to help meet the projected shortages. Goldman Sachs is projecting a 360,000 tonne global shortage in 2017.

The Lisbon-based International Lead and Zinc Study Group has reported a zinc deficit of 64,000 tonnes for the January-May period.

At present about 6% of steel produced in China is galvanized compared with 19% in the U.S. and China’s catch-up is expected to boost demand for the metal. As Nevada Zinc points out, zinc consumption is expected to grow annually around 4% until 2020.

Refined zinc imports by China have been falling of late; this thought to be due to reluctance to pay the higher prices now demanded by producers. But Shanghai-based stocks have been falling since the beginning of June. Capital Economics thinks the recent decline in zinc ore imports is more a symptom of declining mine supply globally rather than weaker Chinese demand.

Nevada Zinc’s 100% owned Lone Mountain project is located within close proximity to Eureka, Nevada. Nevada Zinc’s 218 claims at Lone Mountain include the historic Mountain View zinc mine that, between 1942 and 1968, produced more than five million pounds of zinc, 650,000 pounds of lead and 4,000 oz. of silver were mined.

Last week Nevada Zinc reported assays from new holes at Lone Mountain, one returning 12.38% zinc-lead over 12.19 metres.

Australia, China, Peru, Mexico and the U.S. have the largest zinc reserves and together accounted for 152 million tonnes, or 74.5% of the global total as of January 2016, although zinc ore deposits are found in more than 50 countries.

Coal not quite finished

In the metals and mining business, it always pays to regard forecasts with a little scepticism.

Remember the “coal is finished” gloom-mongering? Well, it seems that China’s efforts to reduce overcapacity in its own coal sector, and close uneconomic mines, has seen a boost in the country’s imports. Thermal coal prices have been supported by a weaker U.S. dollar and a 25% gain in oil prices since the beginning of the year, according to the Melbourne-based ANZ Bank.

The Australian benchmark thermal coal price has bounced 20% since January to $61/tonne.


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