Base metal price slump stings industry

Drop in industrial metal values hammers Alaska, Northwest Canada producers, explorers; analysts hope stimulus will hasten recovery

Last updated 2/22/2009 at Noon

The plummet in base metal prices in 2008 will be felt across Alaska and Northwest Canada's mining sectors. Miners of the far north reaches of North America enjoyed a bounty when base metal prices reached record values in 2007, carrying into 2008.

The escalation of base metal prices was driven by expanding markets in China and India, as well as a building, retail and technology boom in the West.

Mines producing the industrial metals enjoyed unprecedented returns from the ore shipped to a hungry market, and investors bought up the stocks of junior explorers searching across the vast northern expanse for zinc, copper, lead and other base metals demanded by global markets.

Over the past year these essential metals have lost about 65 percent of their value as worldwide economic meltdown has resulted in weakened demand and growing stockpiles.

Base metals important to industry

Base metals are important elements to Alaska and Northwest Canada's mining industry. Some of the world's largest and most important deposits of these industrial metals can be found in the region, and junior explorers continue to discover other potential sources of these essential minerals.

Zinc is the largest contributor to the economics of Alaska's mining industry. The Red Dog mine in Northwest Alaska is the world's largest zinc producer. The zinc-lead mine, operated by Teck Cominco Ltd., accounts for about 80 percent of the zinc produced in the United States.

Zinc and lead are also important contributors as by-product credits to the economics of the Hecla Mining Co.'s Greens Creek silver mine near Juneau in Southeast Alaska.

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Capstone Mining Co. (formerly Sherwood Copper Corp.) operates the Minto copper mine, Yukon's only producing hardrock mine. When Minto went into production in 2007, copper was selling for nearly US$4 a pound. The red metal now sells for around $1.50 a pound.

There are several other copper projects in various stages of exploration and development in Alaska and Northwest Canada. The Pebble project in Southwest Alaska is the world's largest known deposit of copper. Northern Dynasty Minerals Ltd. estimates the massive metal deposit contains 48 billion pounds of copper and 1.9 billion pounds of molybdenum. Northern Dynasty and 50-50 partner Anglo American PLC plan to seek permits to develop the massive metal deposit, which also hosts a significant quantity of gold, in late 2009 or early 2010.

There are currently no producing aluminum or nickel mines in Alaska and Northwest Canada, though multibillion-dollar Japanese conglomerate Itochu Corp. has agreed to invest $40 million in Pure Nickel Inc. for exploration of the Man high-grade nickel-copper-platinum group element property in Interior Alaska.

The Man project is not the only project in the region that has drawn interest from Asia. In June China-based Jinduicheng Molybdenum Group, Ltd. and Northwest Nonferrous International Investment Company Ltd. closed a deal to buy Yukon Zinc Corp. The Vancouver-based company is in the final phase of constructing a mine at the silver-rich Wolverine zinc-copper-lead-silver-gold deposit in southeastern Yukon. The Wolverine Mine is scheduled to begin production in 2009.

Juniors hit hard

Junior exploration companies have been hit especially hard by the credit crisis and subsequent financial meltdown. Many of Alaska and Northwest Canada's top explorers watched their stock prices plummet more than 90 percent in 2008 as investors abandoned this sector.

The hit on base metal explorers has been twofold. In addition to the drop in base metals prices, the meltdown in the financial services industry has dried up credit available to the junior explorers. Exploration companies with gold properties have fared much better than base metal explorers.

Financial experts are reluctant to predict when value will return to the junior mining sector. Most of the juniors exploring Alaska and Northwest Canada have seen their stocks begin to recover since the beginning of 2009.

Many of the juniors have indicated they are letting their stock prices recover for as long as they can before raising money for the 2009 exploration season. The full effect of the economic downturn on these far north explorers probably will not be known until the second quarter of the year.

One market analyst told Mining News that considering the hit many of the blue chip stocks have taken over the past year - for example, General Electric down 67 percent, the collapse of Bear Stearns and Lehman Brothers filing bankruptcy - the junior mining sector, with the potential of high rate returns on investment, is looking a lot more attractive.

Plans to stimulate demand

Analysts are reluctant to make any long-term base metal price forecasts, but most agree that prices will remain low in 2009.

Base metal stockpiles have increased substantially since mid-year 2008 as a result of the worldwide economic slowdown and the subsequent drop in demand for consumer goods.

Frederick Sturm, executive vice president and chief investment strategist for Toronto-base Mackenzie Financial Corp. advised miners attending the Northwest Mining Association's annual meeting in December to scale back their projects to meet the lower demands of market conditions.

Many producing base metal mines have reduced production or shut down altogether as a result of reduced demand and/or the economics of projects due to low prices.

Production cut-backs seem to have stabilized the escalating zinc stockpiles, but surpluses of aluminum, nickel and copper continue to grow. It is anticipated that in addition to production cuts, a rise in demand will be needed to reduce the mounds of base metals.

Most analysts pin the hope of base metal price recovery on the economic stimulus plans being implemented by China and the United States, the top two consumers of industrial metals, respectively.

Forecasters say it will take time for the stimulus plans to have any real effect on base metal prices, citing the need for an increase in consumer spending to bolster the demand side of the equation. Analysts predict it will take until at least the third quarter of 2009 for the effects of the Obama stimulus plan to fuel consumer spending.

The infrastructure portion of the plan could have a more immediate effect on the industrial metals, especially zinc, which is used to galvanize many of the items needed in building projects. Metals analysts say it is hard to calculate what effect the $787 billion stimulus plan will have on base metals until they have more details on the spending, especially the dollars to be spent on infrastructure.

Author Bio

Shane Lasley, Publisher

Over his more than 16 years of covering mining and mineral exploration, Shane has become renowned for his ability to report on the sector in a way that is technically sound enough to inform industry insiders while being easy to understand by a wider audience.

Email: [email protected]
Phone: (907) 726-1095
https://www.linkedin.com/in/shane-lasley-ab073b12/

Base metals; essential building blocks of modern civilization

Man has used base metals for at least 9,000 years and his ability to make use of these essential metals has gone hand-in-hand with the development of modern civilization. Today, virtually every element of human endeavor involves the use of industrial metals in one form or another.

"I generally like to point out to people that when you look around, probably 90 percent of what is above the ground used to be below the ground and got here principally through mining," Hunter Dickinson Ltd. President and CEO Ron Theissen said in the company's January newsletter.

Copper is one of the oldest metals ever used and has been one of the important materials in the development of civilization. Electrical uses of copper, including power transmission and generation, building wiring, telecommunication and electronic products, account for about three quarters of modern copper use.

Zinc, primarily used for corrosion protection, is the world's fourth commonly used metal. Over half of the zinc in the U.S. is used for galvanizing iron and steel. Alloys are the second most common use of zinc. Zinc oxide is widely used as a white pigment in paints, and as a catalyst in the manufacture of rubber.

Lead-acid batteries account for 88 percent of the use of lead, another metal produced at the Red Dog Mine along with zinc.

Nickel's properties have made it an important alloy metal. About 85 percent of nickel use is in alloys, mostly in stainless steel production. Nickel is a key part of many common rechargeable battery systems - used in electronics, power tools, transport and emergency power supply.

The ability of molybdenum to withstand extreme temperatures without significantly expanding or softening makes it useful in applications that involve intense heat. More than 43 million kilograms, or 102,500 tons, of molybdenum is used as an alloying agent each year in stainless steels, tool steels, cast irons, and high-temperature superalloys.

Because virtually every product humans use contain, or requires tools, equipment or products made up of base metals, the demand for these essential metals is closely related to global economic conditions and the demand for consumer goods. The recent global recession has resulted in a worldwide slowdown in buying. In order to keep in stride with lowered consumer demand, mining companies are trying to put the brakes on base metal production, but as global economic conditions improve, the market will once again demand an increased supply of these essential building blocks of modern civilization.