Peru’s Ministry of Energy and Mines (MEM) expects that an international consultants’ report on the environmental impact study of the Conga gold copper project will be completed in March 2012, Minister Jorge Merino has said. The project is estimated to cost up to $4.8 billion to build by Newmont Mining and Peru’s Buenaventura. The environmental study was approved in October 2010, but after protests by local communities against the project the government decided to contract international experts to examine the study.

This latest study will focus on the project’s impact on the water resources and the solutions proposed by the companies, Merino said. The objective is to check if the study fulfills the environmental requirements and if it could be improved, he added. Governmental backing for the project is strong, and the government has suggested it cannot afford for the project not to go ahead - it would face huge compensation claims. Highlights of Peru’s current mining projects and the dramatic recent rise of Colombia’s mining industry are featured in an article in the March issue of International Mining.

Completing the suite of renewals of its major mining services contracts, Industrea has signed a continuation of the whole of mine contract with Cockatoo Coal subsidiary Baralaba Coal for its Baralaba South mine in the Bowen Basin in Queensland. Industrea subsidiary Industrea Mining Services expects revenue of approximately A$76 million from the contract through to December 2013. Originally awarded the contract in July 2009, following variations, the contracted works include the provision of drill and blast works together with construction of the recently completed 1:1000 flood levee wall extension.

Industrea Managing Director and CEO, Robin Levison, said the contract demonstrates the strong working relationship between Industrea and Cockatoo Coal and is an important part of the ongoing diversification strategy
for the IMS business. “Subject to production volumes at the mine there is an option for Baralaba Coal to continue the contract services into 2014.

“We now have our key contracts across Xstrata for Black Star open-pit mine, Rio Tinto Mt Thorley Warkworth, CST Mining Lady Annie and Baralaba secured under contracts out to the end of calendar year 2013.

With confirmation of the discovery of two strategic minerals, vanadium and graphite, Energizer Resources says it “is now well positioned to move forward to mine development. This confirmation of the significant discovery of graphite, coupled with the Company’s NI 43-101 compliant resource of vanadium, and their respective roles in Green Energy and new cutting-edge products, has now become the catalyst for development. Energizer’s discoveries place it in a unique position within the industrial minerals arena - the ability to provide two strategic minerals from one source. The company also believes that its graphite discovery is the first new discovery globally of this important industrial mineral. The significance of graphite is now being recognised as a result of its use in multiple new applications and outside of China, companies have been focused on reopening past-producing graphite projects to meet anticipated demand.”
Graphite is well established as an essential industrial mineral. However, it is graphite’s new applications in electric vehicles, high-tech consumer electronics and nuclear power, in conjunction with its new label as the wonder substance in its single-layer form, called graphene, that is changing the demand curve for graphite. While graphite and vanadium are forecast to have strong growth in their traditional applications (primarily steel related) for the next decade, it is these new applications and developments, and their resulting projected demand, that are the drivers for the development of the Green Giant project.

The other important issue relating to graphite and vanadium is the China factor. Despite traditionally producing 75% of the world’s graphite, it would appear China’s raw materials supply is both rapidly diminishing and lower in quality. Once the biggest exporter of graphite, China is now the biggest importer. It has imposed a 20% export duty plus a 17% Value Added Tax and closed state-owned enterprises this year to preserve its graphite resources.

Energizer has been at the forefront of outlining the applications for vanadium, such as its proven role as a battery “supercharger” when combined with lithium and the ongoing advancements in, and the deployment of, Vanadium Redox Flow Batteries (VFBs) by such notable companies as the US Ashlawn Energy and Germany’s Cellstrom.

We have witnessed the evolution of VFB’s going from a cost of $0.22/kWh per-cycle over a year ago to approximately $0.11/kWh per cycle today with government subsidies.

Ashlawn Energy, who is on target to install North America’s largest VFB (at 8 MWh) in Painesville, Ohio this year, has been a pioneer in the cost reduction of VFBs. Ashlawn Energy expects to be less than $0.09/kWh per cycle within the next 18 months. Achieving this would match the current cost of today’s legacy backup power systems, shortens the payback period and would be the economic catalyst to commercialise the VFB.

Given this background, Energizer believes that the timing to move forward with its project is excellent. To this end, it has signed a formal agreement with South Africa’s DRA Mineral Projects, a world-leading process engineering and mining project development management firm, for the development of industrial mineral projects in Madagascar. Specific focus will be on the development of vanadium and graphite minerals on Energizer’s Green Giant and Malagasy Minerals JV properties.

DRA will be appointed as the technical partner of Energizer. As a provider of full EPCM services, DRA offers Energizer the ability to both build and then operate a mining operation, thus providing a complete solution. With this expertise, key DRA personnel will have direct roles in the development of the project in Madagascar and will be responsible for facilitating discussions and interfaces with the Madagascar Government and key stakeholders in the Sakoa Coal project regarding infrastructure development and the identification of any synergistic opportunities.

Johann de Bruin, Director of DRA Mineral Projects: “DRA has been following the development of the minerals industry in Madagascar with keen interest over the past six years whilst completing a series of feasibility studies for various potential projects on the island. It is evident that Madagascar has a lot to offer the global minerals industry and the resolution of political uncertainty, commitment to infrastructure development along with the continued global demand for its minerals are expected to mobilise a number of projects. DRA views the presence of these minerals, and future breakaway materials like graphene, as essential in applications for electric vehicles, energy storage, and high-tech as promising and is therefore very excited about the relationship with Energizer Resources.”

Kirk McKinnon, CEO of Energizer: “This arrangement with DRA is significant as it provides Energizer with experts that have all the skill-sets required to advance our project to mine development, while interfacing with the Government, and leveraging their knowledge on infrastructure through insight into the Sakoa Coal project. We are also pleased that Energizer’s continuing project development will bring employment and substantial expansion of infrastructure to the people of Madagascar in this region. The company uses well over 100 local people through its exploration programs and have found them to be highly industrious. DRA will be able to leverage this skill-set as the project grows and continues to add more resources and infrastructure enhancements to the region. Energizer’s primary focus will now be the interface with and procurement of, key strategic partners and project financing. Currently the company is well financed to reach key project milestones, including the completion of the Preliminary Economic Assessment.”

Key Components of Agreement:

Exclusivity with DRA for the development of vanadium and graphite mineral projects in the geographical region of Madagascar
Manage and monitor the development of required metallurgical testing and to ascertain the feasibility via PEA, prefeasibility study or BFS of potential mine projects
Preparation of presentations for the Energizer board, potential investors and partners to update such stakeholders on project development progress, either during the study or implementation phases of the project.
Effective February 1, 2012, Energizer’s Board of Directors will implement the following appointments to further position the Company as it moves to mine development. Johann de Bruin will be appointed to the company’s Board of Directors as the Project Leader and key interface for mine development. He is a Director of DRA with a 15-year track record of bringing numerous greenfield mining projects throughout Africa to feasibility. He currently leads the initiative of business development into Africa for the DRA Group and has acted as the primary liaison between DRA and Energizer for the past three years. de Bruin brings considerable insight and skill into evolving the infrastructure components associated with new projects in developing countries and is highly committed to the advancement of Energizer’s project. He will be involved in the project on a day-to-day basis as required.

Robin Borley will be appointed to the company’s Special Advisory Committee in the capacity of Capital Projects and Mine Development. Borley is a Director of DRA and a Graduate Mining Engineer and Certified Mine Manager with over 25 years of International Mining experience across a range of commodities. He brings considerable knowledge and experience to the technical and operational aspects of mine development. As the former Chief Operating Officer with Red Island Minerals, one of the property owners of a significant coal resource in the Sakoa Coal Field project, his experience gained as well as the contacts and interface made with key Government officials will be invaluable to the company as it looks to develop its Madagascar projects. Borley will also be involved in the project on a day-to-day-basis as required.

Marc Hein will be appointed to the Special Advisory Committee in the capacity of Energizer Mauritian Counsel to oversee and manage the interface with both the Madagascar and Mauritian Governments. Hein is a qualified Mauritian, English and French lawyer, specializing in business law. He is the Head of Practice of Juristconsult Chambers and has practised law in Mauritius and Madagascar since 1980. As a provider of legal services to Energizer for the past four years, Hein has spent considerable time in Madagascar and maintains excellent relations with key government officials in both Mauritius and Madagascar. He is a former Member of Parliament in Mauritius and a former Chairman of the Mauritius Bar Council.

They will both join Brian Tobin, Peter Harder and Anthony Toldo on the Special Advisory Committee.

Within the company Craig Scherba will be appointed to Senior Vice President for Energizer’s operations in Madagascar. Over the past fiveyears, he served as a geological consultant and then as Energizer’s Vice President of Exploration and is primarily responsible for the discovery and development of the project to-date in Madagascar. Reporting to Senior Management of Energizer, Scherba will assume the primary responsibility of managing the Madagascar operations, including direct oversight of DRA and all exploration and development activity.

Fok Seung is a Chartered Accountant of the Institute of England and Wales and the Association of Chartered Certified Accountants. Employed as Energizer’s Madagascar Country Manager for the past five years, he is based full time in Madagascar and will continue to act in this capacity with a focus on financial related business activity.

Emission control is one of the major articles in the February issue. Space constraints resulted in cuts to the Dust-a-Side and ECOLOGY news in the dust suppression article. There was also a consideration of how the sounds eminating from an operation and the look of it can be disguised. SLR Consulting is delivering an exemplary solution to an operation in the UK. A new hill is being developed to block out sight and sound. Don’t forget the water management article in the March issue - we are still accepting interesting editorial contributions to that article.

When properly designed and installed the Dust-a-SideTM High Pressure Mist System produces a high concentration of 10 μm fog droplets. The size of the water droplets provides optimum performance for attraction and
suppression of PM 10 and smaller dust particles. The system can effectively remove breathable and fugitive dust, the company says. Dust surrounded by dense fog has little chance to escape. All systems are customdesigned with corrosion resistant components.

Modular design allows for easy system installation and includes completely programmable controllers with remotely located sensors.

ECOLOGY SRL’s Fog Cannon is another option to tackle airborne particles and dust. The company says “the patented Fog Cannon® suppresses up to 90% of airborne dust particles. It is available for manual use or fully automated to suppress dust in the open air and suppress dust concentrations (loading/unloading trucks, transfer by conveyor belt, unloading hoppers, etc.). The machine emits a powerful fog jet of fine droplets of water/air and, if required, also a surfactant. Two kinds of surfactant are available: agglomerating and film-forming.

Surfactant ECS89 (certified by the German Ministry of Health, VDI 2584 and Ta-Luft.) creates a harmless fog capable of quickly suppressing airborne particles. The film-forming type ECS90 is saline-based combined with natural biological glue. It creates a crust formation capable of containing the dust particles.

There are several models of Fog Cannon available with different projections and reach capabilities: from a range of 30 to 250 m , a rotation angle of approximately 270° laterally and a continuously adjustable height. This
means that a single machine is capable of covering a level area of up to 130,000 m2. Water consumption varies from just 210 up to 1,000 litres/min, while the maximum consumption of surfactant is proportionally set at 1:400 relative to the flow of water.

Similarly, WLP, another Italian company, in order to develop an efficient and lasting system has reduced the size of drops through the nebulisation of water. It has created nozzles which can eject droplets, whose diameter is smaller than 80 μm (mist is made up of droplets with a diameter between 10 and 50 μm and raindrops have a diameter between 1 and 7 mm). In this way, it has managed to maximise the processes of rainout and washout, which are the most effective in dust suppression.

Particles act as nuclei for the condensation of cloud droplets. Some of these droplets become larger and fall to the earth’s surface as raindrops. The particles (condensation nuclei) deposited in this way are said to have been rained out. Washout is the removal of particles by cloud droplets. Particles are incorporated into an already existing drop. The difference between washout and rainout is the pre-existence of a collecting drop.

Mining’s emissions can also be sound and just the look of an operation. SLR Consulting is delivering an exemplary biodiversity offsetting scheme as part of the extension of the 160-ha Bardon Hill quarry in Leicestershire, England. The extension will involve the removal of up to 20 million m3 of overburden and, due to the sensitive location of the operation, the landscape design is forming a key component of the development approach.

SLR’s scheme involves the creation of a new hill to the north of the future working area, which will accommodate all of the initial overburden and help to screen the new operation. Mirroring the landscape in the surrounding Charnwood Forest, the new hill will exceed 240 m and cover 90 ha. With the upper slopes restored to heathland and the lower slopes used for agriculture, the new landscape will be comparable with other local high spots in the National Forest.

SLR is now moving ahead with the detailed design which will involve the translocation of species rich hedgerows, lichen covered rocks and lowland wet grassland as well as the creation of critical habitats for protected species such as amphibians, badgers and bats and the creation of a Biodiversity Action Plan for the whole estate.

“This project is a great example of how sensitive landscape design can help to overcome local concerns while also providing biodiversity enhancements,” said SLR Principal Sarah Planton. “Our scheme provides a complimentary balance between the impact of quarrying on the landscape and allaying the concerns of local people.”

Working closely with the in-house team SLR has provided landscape, restoration and ecological advice including population surveys of amphibians, reptiles, badgers, birds and lichens. Over 20 km of hedgerow were also surveyed and a monitoring regime for important remnant grassland habits has been established.

Kinder Morgan Energy Partners (KMP) plans to invest approximately $140 million to further expand its coal handling facilities along America’s Gulf Coast. Concurrently, Arch Coal has signed a long-term throughput agreement with KMP that will help support the expansion of these export facilities. Also, Arch and KMP are in final discussions to include, in the throughput agreement, port space for coal shipments at KMP-owned facilities on the US East Coast. Upon completion of the proposed terminal upgrades and subject to certain rail service agreements, Arch will ship coal at guaranteed minimum volume levels through KMP-owned terminals. The expansion of KMP s export facilities along the Gulf Coast and East Coast will provide incremental port capacity for Arch s growing seaborne coal volumes.

“The demand for export coal continues to grow and we are pleased to offer Arch and other customers options in various markets through our multi-location terminal network,” said Jeff Armstrong, President of Kinder Morgan Terminals. “We are also extending existing long-term coal agreements with Arch at our upriver terminals (Cora, Cahokia and Kellogg) in Illinois.”

“This strategic partnership with Kinder Morgan, a company with a proven track record of running successful terminal operations, will allow Arch to significantly increase our participation in the global coal market,” said John W. Eaves, Arch’s President and COO. This dedicated capacity directly underpins our long-term strategy to grow Arch coal exports by fourfold in the next decade, and is consistent with our view that a global coal supply shortfall will persist over that time frame.”

Specific to the expansions on the Gulf Coast, KMP will install a new shiploader and a railcar loop track to handle three 135-car unit trains at its Deepwater terminal in Houston. Following completion of the project, the Deepwater terminal will have throughput capacity of 10 Mt/y of coal. The projects are expected to be immediately accretive to cash available to KMP unitholders upon completion, which is anticipated in the second quarter of 2014.

KMP s Deepwater and East Coast facilities offer dual rail access from Class 1 railroads, while International Marine Terminal (IMT) provides barge access to the inland waterway system. The Deepwater terminal will be capable of handling panamax- and post panamax-size vessels, while one East Coast terminal and IMT will be capable of handling cape-size vessels. These multiple transportation options will allow Arch to unlock incremental value for its domestic coal production and coal reserves over the next 10 years. Anticipated throughput volumes will consist of metallurgical and thermal coal from Arch s major coal producing regions, including Appalachia, the Powder River Basin, the Western Bituminous Region and eventually the Illinois Basin.

“Securing additional port capacity further supports the expansion of Arch’s international coal platform,” said Eaves. “Along with the acquisition of the ICG assets, the opening of new business offices in Singapore and London, and previous equity investments in port terminals on the East Coast and West Coast, this agreement strengthens Arch’s position as one of the top U.S. suppliers in the seaborne coal trade.”

Arch Coal is a top five global coal producer and marketer. Arch is the most diversified American coal company, with mining complexes across every major US coal supply basin. Its core business is supplying cleaner-burning, low-sulphur thermal and metallurgical coal to power generators and steel manufacturers on four continents.

KMP is a leading pipeline transportation and energy storage company in North America.

RBC Capital Markets forecasts copper demand growth of 3.6% in 2011, 5.5% in 2012, 5.6% in 2013, and trend growth of approximately 4.0% in 2014 and 2015. Molydenum growth is forecast at 8.4% in 2012 and 8.8% in 2013, before settling back to trend growth of a little over 5.0% in 2014 and 2015. For nickel the forecast growth is 9.5% in 2012, 10.3% in 2013, and trend growth of approximately 5.0% thereafter. Finally for zinc, RBC says growth of 5.9% in 2012 and 6.0% in 2013, followed by trend growth of 3.1% in 2014 and 2015.

Global copper demand grew by 8.4% in 2010 after declining 0.8% in 2009. Western World demand grew by 8.7% while growth in China slowed to 7.4%. “We expect Western World demand to decline by 0.1% in 2011 with the end of restocking and Chinese growth to increase to 9.7%. While leading indicators continue to point to slowing economic growth, we have so far factored only a modest slowing in growth in the US and low but positive growth in Europe into our analysis. We forecast growth of 3.6% in 2011, 5.5% in 2012, 5.6% in 2013, and trend growth of approximately 4.0% in 2014 and 2015.”

RBC analysis suggests that in 2009, refinery capacity utilisation rates fell to levels not seen since the early 1980s. Restricted mine and scrap supply constrained refined production in 2009, and mine disruptions remained a constraint in 2010. Despite ongoing mine constraints, global refined production growth rebounded to 4.2% in 2010. “We estimate production grew by a further 4.7% in 2011. We forecast growth of 8.1% in 2012, 3.6% in 2013, and 4.8% in 2014. In 2015, we forecast growth of only 3.0% due to a shortage of mine supply. Mine capacity remains the bottleneck.

“We expect inventories to increase modestly in 2012 and then to decline on trend throughout the remainder of our forecast period, supporting historically strong pricing. We estimate that the market was in a deficit in 2011 although reported inventory changes suggest a balanced market. A small forecast surplus in 2012 should lead to an increase in inventories and limit any price increases. In 2013 and beyond, we expect renewed deficits to draw inventories down below critical levels, supporting strong price increases. In 2015, inventories are forecasted to drop to minimum levels, thereby driving prices to levels that would restrict demand in order to balance the market.”

In pricing, the copper market remains tighter than the other base metals. Inventories are relatively low, there is little excess mine capacity, and mine utilisation rates remain high, thereby supporting strong pricing. “We forecast a modest correction in 2012 on the back of our forecast surplus. However, we expect prices to increase to new highs in 2013 and beyond in what we expect will be a very tight market. Copper remains our preferred base metal. However, there is significant downside price risk in the event of a global economic downturn. We forecast an average price of $3.50/lb in 2012, $4.00/lb in 2013, $4.25/lb in 2014, and $4.50/lb in 2015. Our long-term price forecast is $2.25/lb in 2011 US dollars.

The risks to these forecasts are:
Economic Growth - A 1% decrease in forecasted 2012 global demand would decrease our forecast growth rate to 4.4% from 5.5% and increase the forecast surplus by over 200,000 t.
Investment Demand - Investment demand remains a key driver of commodity prices, leaving prices vulnerable to increased volatility.
China - Slower demand growth in response to government measures to cool economic growth could increase the forecasted 2012 surplus.
Supply - A higher level of production disruptions and hence lower operating rates than we currently assume could limit supply to levels below the current forecasts.

After a decline of 9.9% in 2009, global molybdenum demand rebounded by 14.6% in 2010 on the strength of restocking in the developed world. China has been the main driver of growth in molybdenum demand over the past five years and RBC expects this to continue throughout its forecast period. “We estimate demand grew by 6.2% in 2011, and we forecast growth of 8.4% in 2012 and 8.8% in 2013, before settling back to trend growth of a little over 5.0% in 2014 and 2015.

“We forecast a dramatic acceleration in mine production growth throughout our forecast period, as new projects, both primary and secondary, come on stream. After rebounding strongly in 2010, we estimate that global mine production declined by 3.0% in 2011. We forecast growth of 5.0% in 2012, 3.4% in 2013, 8.6% in 2014 and 8.9% in 2015.

“We estimate that the market was in surplus for the fourth year in a row in 2011. However, we expect the market to move into deficit in the second half of 2012 and become very tight in 2013 and 2014. Our analysis continues to suggest that projects delayed in the 2008/2009 downturn will not allow supply to keep up with the growth in demand in the medium term.

“We forecast deficits of 2 Mlb in 2012, 34 Mlb in 2013, and 15 Mlb in 2014. Assuming that current production plans are met, we expect the market to face a large and growing surplus beginning in 2015 and beyond.

“We remain quite positive on the prospects for significant molybdenum price increases over the next two to three years. However, we do not believe that a significant increase in molybdenum prices is likely before the second half of 2012. After increasing in the first two months of 2011, prices were under downward pressure through most of the rest of 2011. From a high of $17.75/lb in February of 2011, prices declined to a low of $12.60/lb at the end of October. Prices rallied modestly in the last two months of 2011 to finish the year at $13.30/lb and currently stand at $13.75/lb. We forecast an average price of $17.50/lb in 2012, rising to $25.00/lb in 2013 and $20.00/lb in 2014, before falling back to $15.00/lb in 2015 in the face of our forecast growing surplus. Our long-term price forecast remains $11.00/lb in 2011 US$ terms.”

The risks to these forecasts are:
Economic growth - While leading indicators continue to point to slowing growth, RBC has so far factored only a modest slowdown in the USA and low but positive growth in Europe into its analysis. Slower growth than currently forecasting could increase the forecast surplus in 2012.
China - Slower demand growth in response to government measures to cool economic growth could delay a significant price increase until 2013.
Supply growth - Difficulties or delays in starting up new projects could limit supply, leaving the market tighter for longer than forecast.

After three consecutive years of declines, global nickel demand grew by 18.0% in 2010. Western World demand grew by 11.8%, while growth in China accelerated to 29.9%. RBC expects Western World demand to decline by a modest 0.3% in 2011 and Chinese growth to slow to 19.4%. While leading indicators continue to point to slowing economic growth, it has so far factored only a modest slowing in growth in the US and low but positive growth in Europe into its analysis. It estimates demand grew by 7.5% in 2011, and forecast growth of 9.5% in 2012, 10.3% in 2013, and trend growth of approximately 5.0% thereafter.

Global refined production increased 9.5% in 2010 after declining for two years in a row. The return to work at Vale’s Canadian operations after lengthy strikes and continued growth in nickel pig iron production in China were largely responsible for the rebound. Supply growth moderated in 2011 as new projects were delayed. But despite ongoing problems, RBC expects new projects to begin to make a significant contribution to supply in 2012. On top of that, and despite declines in the latter part of 2011, nickel pig iron production could be running at much higher rates than currently forecast. RBC estimates supply grew by 6.4% in 2011, and forecast growth of 12.3% in 2012, 9.8% in 2013, 5.1% in 2014, and 4.6% in 2015.

“While the market was in deficit in the first half of 2011 on the back of strong demand and production disruptions, we estimate that the market moved into surplus in the fourth quarter of the year as production increased and demand stalled. Our analysis suggests that inventories will remain well above the critical level throughout our forecast period. Our forecasted growth in demand in 2011 and beyond looks likely to be matched by increases in supply, leading to balanced markets and no significant drawdown in inventory.

“With the market expected to be in surplus for the remainder of our forecast period, we expect marginal costs to be a key determinant of prices. Based on the historical inventory/price relationship and our cost work, we see fundamental price support in the $8.50/lb to $9.00/lb range. In 2012 and 2013, we expect prices to remain within this range to limit production increases and balance the market. We forecast an average price of $8.25/lb in 2012, $9.00/lb in 2013, $10.00/lb in 2014, and $11.00/lb in 2015. Our longterm price forecast is $8.50/lb in 2011 US$.

The risks to these forecasts are:
Economic Growth - A 1% decrease in forecast 2012 global demand would decrease our forecast growth rate from 9.5% to 8.4% and increase forecast surplus by 17,000 t.
Investment Demand - Investment demand remains a key driver of commodity prices, leaving prices vulnerable to increased volatility.
China - Slower demand growth in response to government measures to cool economic growth or higher nickel pig iron production could increase forecast surplus in 2012.
New Capacity - Delays or difficulties in bringing new projects (many of which rely on new technologies) on stream could result in tighter markets and higher prices than currently forecast.

Finally, global zinc demand grew by 15.3% in 2010. Western World demand grew by 15.1% while growth in China accelerated to 15.0%. “We expect Western World growth to slow to only 0.5% in 2011 and Chinese growth to decrease to 2.2%. While leading indicators continue to point to slowing economic growth, we have so far factored in only a modest slowing in growth in the US and low but positive growth in Europe into our analysis. We estimate global demand grew by 1.2% in 2011, and forecast growth of 5.9% in 2012 and 6.0% in 2013, followed by trend growth of 3.1% in 2014 and 2015.

“Global refined zinc production rebounded by 13.7% in 2010 after declining 4.1% in 2009. We estimate supply grew by 2.1% in 2011, and forecast growth of 4.4% in 2012, 3.7% in 2013, and 4.0% in 2014. In 2013 and 2014, we expect mine closures to begin to constrain supply, and by 2015 we forecast a decrease in refined zinc production of 0.6% as supply is limited by concentrate availability.

“The global zinc market recorded a surplus of 282,000 t in 2010, the fourth straight year of surplus and we estimate the market was in surplus again in 2011. We forecast inventories to peak in 2012 and remain at historically high levels until 2015, when we expect an acute shortage of concentrates to leave the market in a large deficit and result in a sharp drawdown in inventories. Our forecast rebound in demand should be matched by rising mine production in 2012, leaving the market in surplus. In 2013 and 2014, we expect mine closures to begin to constrain supply, leaving the market balanced although with inventories at historically high levels. In 2015, we expect a shortage of mine supply to result in a large deficit, drawing inventories down significantly.”

The zinc price remains above the bottom of its historical range in real terms compared to inventories as weeks of consumption. With inventories high, capacity utilisation less than full effective rates, and the market in surplus, the fundamentals do not justify current price levels. In a surplus market, the marginal cost of production would normally be expected to be a key determinant of prices. The RBC cost analysis and the historical inventory/price relationship suggest fundamental price support around $0.70/lb, pointing to further downside risk from current levels. “We forecast an average price of $0.90/lb in 2012, $1.00/lb in 2013, $1.30/lb in 2014, and $1.50/lb in 2015. Our long-term price forecast is $0.90/lb in 2011 US$.

The risks to these forecasts are:
Economic Growth - A 1% decrease in forecast 2012 global demand would decrease the forecast growth rate from 5.9% to 4.8% and increase forecast surplus by 134,000 t.
Investment Demand - Investment demand remains a key driver of commodity prices, leaving prices vulnerable to increased volatility.
China - Slower demand growth in response to government measures to cool economic growth could result in a larger surplus in 2012.
Supply - Higher mine capacity than currently forecast, particularly in China, could result in larger surpluses in 2011 and 2012 and leave the market in surplus in 2013 and beyond.