Zinc is killing it right now

Lithium. Weed. Biotech. Feh.

Take a look at zinc.

ZINC

Seriously, zinc. Back in January I wrote about how zinc had gone too far south, how there were some quality projects starting up, and that it ought to be on your radar.

Well look at that stuff now, it’s up more than 30% this year.

In fact, base prices now are back to where they were in July 2015, before the ass really dropped out of the zinc market.

Copper, aluminum, lead and nickel? Nobody gives a crap. Flatlined.

But zinc? Remember last year, when Glencore shuttered a bunch of its zinc production in reaction to falling prices?

From Bloomberg:
“Macquarie estimates that supplies of concentrate will shrink 8 percent this year with consultant CRU Group forecasting the biggest shortage on record. Smelters will need to compete to secure the dwindling supply of concentrate by reducing the fees they charge miners to turn it into zinc, and that may prompt some to curb refining, according to SMM Information & Technology Co.”

Smelters are also being squeezed from outside China. Purchases of foreign concentrate shrank to the lowest since 2014 in April and are down 17 percent in the first four months from a year earlier, according to customs. “Foreign miners are prioritizing supplies to their own refiners, leading to a big drop in shipments to China,” said SMM’s Liu. By contrast, refined-zinc imports jumped 65 percent in the first four months from a year earlier, customs data show.

Remember January, when Teck Resources (TCK.B.T) stock was under $4? It’s up over 400% now, to $17.56. Trevali Resources (TV.T), down on the junior end of zinc, is ramping up production and opening new holes at exactly the right time, and is up from $0.33 in January to over $0.80 now.

All you high risk/high reward guys, you’re probably sniffing at this now and thinking, bah, the value has already been had in this sector.

Bullshit. China’s biggest zinc processors are still trying to figure out whether they’ll be able to get their hands on raw materials going forward. Inventories are low and tracking lower. China infrastructure is slated to grow in spending by 19% from its already high levels.

Even without the surge in zinc prices, Trevali is a beast in the making. Commercial production has just cranked up at the company’s New Brunswick Caribou mine, following a successful commissioning period.

“Declaring Commercial Production at Caribou represents a major milestone for Trevali’s second operating zinc mine and strengthens the company’s position as the only current primary zinc producer on the TSX poised to benefit from the forecast zinc commodity price rally,” states Dr. Mark Cruise, Trevali’s President and CEO.

Caribou production guidance (July 1-December 31, 2016) in payable metals is approximately:
Zinc – 37-41 million pounds
Lead – 14-15 million pounds
Silver – 380,000 to 420,000 ounces

And if that’s not enough to make you happy, down in Peru, Trevali’s Santander mine is producing 2000 tonnes per day.

When I spoke to Cruise midway through last year, he said long term supply was drying up and he flet good about where Trevali was at, in terms of timing of its Caribou production ramping. At that time, stock in the company was around $0.30 and largely tied to the global zinc price.

Now? It’s up, and looking good to keep going up, but not nearly as up as it should be. Trevali is running its show professionally and smartly, it’s timed it’s run perfectly, it’s surging right as inventories are falling off, it’s a straight up gimme.

I’m buying TV.T stock today. This is still the early part of the run. Of five analysts listed on my Qtrade account, three are showing a Strong Buy rating on TV.T, the other two are down as a moderate buy.

Taking their advice.

— Chris Parry
http://www.twitter.com/chrisparry

FULL DISCLOSURE: Not a client, don’t own stock at the time of writing, but my office is in the same building as Trevali’s, if that’s a conflict. Up to you.

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