Zinc Prices set to continue to explode
Silver Stock Report
by Jason Hommel, October 27, 2006
Zinc Prices are up 13% over former highs!
Since I'm such a long term thinker and planner, I'm not used to making predictions that come true so strongly within a month, except when I write up a stock, which can move up 30% the next day.
In my last report on Oct. 11th,
I wrote that zinc prices were breaking out to new highs, above $1.70/lb., and today, a mere 16 days later, zinc prices hit $1.92/lb., 13% higher.
Most investors don't care about zinc, or don't understand the fundamentals. I'll try to keep it simple.
Zinc inventories at the LME are the primary location for zinc stockpiles in the world. Zinc inventories are being rapidly depleted from a high of about 700,000 metric tonnes in 2004, and yet now stand at just over 100,000 tonnes.
(You have to check out the kitco graphs at the link above, it says everything!)
These zinc tonnes are 3.5 days worth of world demand, and will last about 100 days. Confused? The 3.5-day figure assumes all zinc mining in the world stops completely. The 100-day figure assumes zinc mining will continue, and that the deficit between demand and supply will consume the stockpile in about 100 days, unless things change in the next 100 days.
The only thing that can change, and must change, is the zinc price. Prices must rise to choke off world zinc demand.
Think about that for a moment. Mildly rising interest rates are probably not capable of slowing down the growth of the world economy. It has come down to the lack of zinc that is more likely going to do it, because about 75% of zinc is used to galvanize steel, for use in things like cars and building construction.
The annual deficit in zinc is about 420,000 metric tonnes.
Again, you can see that the 113,000 tonnes of zinc left will only last just over 3 months, unless prices rise high enough to choke off world zinc demand.
The reason why mine supply will not increase in the next 3 months is that it takes about 5-10 years to bring new mines to production. In short, people do not understand how slow, how difficult, and how expensive it is to rev up the "old economy". It's not as easy as throwing up a web site, or writing an article, or buying a stock tomorrow. Even if many of the zinc projects were fully funded, and they are not, it would still take years from today to increase zinc production!
Many of the zinc market leaders are saying that it will take at least 2 years from today to increase zinc production. That includes projects in the mine construction phase, such as Apex Silver in Bolivia, which seems to be having trouble with the newly elected Bolivian dictator repeatedly saying he will confiscate the entire mining industry! Many zinc production estimates were counting on projects such as Yukon Zinc's Wolverine deposit coming to production, which recently hit feasibility difficulties. Feasibility was also delayed on Metalline Mining, which recently announced that they may take up to 12 to 18 months more to complete feasibility. And after feasibility then comes project financing, which may take 6-12 months, and then mine construction that can also take a few years!
I'm absolutely convinced that we must see a bubble in zinc prices within the next 3 months to choke off world zinc demand, or else we will run out of zinc. Furthermore, such higher zinc prices must stay high for the next 2 years! The reason is that the paper futures market manipulators cannot short to death a physical commodity that requires delivery! But zinc prices may continue higher even after 2 years! Two years from now, supply and demand still may, or may not, be in balance, but we can evaluate things then. Or even within 3 months!
The 3-month zinc supply must last 2 years--8 times longer than current rates of depletion indicate!
In the meantime, you may wish to start researching & buying up silver/zinc mining and exploration stocks. Let me show you briefly just 3 (share symbols work at Yahoo! Finance).
Apex Silver (SIL) 58.4 million shares @ $15.20/share
Market cap: $888 million
Zinc reserves: 5.2 billion lbs.
Metalline Mining (MMGG.OB) 49.7 million shares fully diluted @ $2.15/share
Market cap: $107 million
Zinc resources: 4.9 billion lbs.
Canadian Zinc (CZN.TO & CZICF.PK): 106.9 mil shares fully diluted @ $.80 USD
Market cap: $86 million
Zinc resources: 2.8 billion lbs.
Apex also hedged, and pre-sold 776 million pounds of zinc at $.48/lb.! Stupid them, almost looks like fraud now that zinc is $1.92/lb., and soaring higher. This creates a mark-to-market hedging loss of $1.92 - $.48 = $1.44 x 776 million lbs. = $1.12 billion loss! (Apex also hedged silver and lead, for more hundreds of millions of dollars lost.)
In over 5 years, Apex stock price has remained mostly flat.
Just today, Canadian Zinc exploded in price, up 18.6% on ten times normal volume. I called the company, and in addition to the recent news of a few days ago, and zinc prices breaking out, they said they recently had 3 brokerage houses approach them trying to do "bought deal" financings, meaning, the entire Private Placement (PP) goes to them only. The company told them all to take a hike, because many warrants are at $1 to $1.25, so there's no reason to finance below that. The brokerages were probably short the stock, to drive down the price, and then hope for a financing to be able to cover. With zinc breaking out to new highs of $1.92/lb., they likely started short covering today.
Shorting a stock is like going into debt. It's also like hedging, or pre-selling zinc.
There is a hedging war going on. Desperate brokers will try to pull every trick in the book to intimidate and persuade the miners to hedge zinc. The miners who hedge will lose. It makes no sense to lock in dollar prices for real things in a time of hyperinflation! Part of the beauty of owning explorers is that they are too far away from production to even think about hedging.
I own MMGG and CZN. I used to own Apex, but I sold when I realized there were much better alternatives.
If you buy the "look at my portfolio", you can see, once a month, which silver and zinc stocks I own, and in what proportion.
You also get access to a forum where you can discuss stocks with other paying members.
Here's what one member wrote a few days ago:
Perfect example of why we are here on Jason's Forum----------------
and looking at his portfolio. I was looking for a Nickel company as I did not follow Nickel at all until I received replies from a thread and did some DD (due diligence). Someone placed a link that had a video all about Nickel and stainless steel. I now know more about stainless steel and Nickel than 99% of the people in the world. This saved me an enormous amount of time doing DD. I then posted for a uranium company and received top of the line, cream of the crop companies that numerous people had already completed DD on these and I cross referenced them to newsletters and selected a few to do my DD and then bought 3 different companies.
Three months later ??? is up nicley in our portfolio and just last week the uranium ???, ??? and ??? are up huge!
These tips from fellow investors and the one Jason provides dwarfs the money we pay each month (hope Jason does not read this he might up his price 8-) but I would still subscribe as I make better decisions by learning from you on this board and Jason's write ups! These are just a few examples I have many more, but you get the picture, so for all who contribute I say thank you very much and so does my family!
Pretty good testimonial, huh?
After you sign up to look at my portfolio, there are three threads in particular that are up at the forum that you may wish to read, each has 3 pages of material or more:
Great Zinc Shares: MMGG and ??? !!!
Top Uranium miner Picks: IN PRODUCTION
Nickel company -- please list top choice
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Final disclaimer: No company has paid me to send out this report, and I own 400,000 shares of MMGG and 540,000 shares of CZN.
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