Zinc holds as precious metals, copper bomb and juniors take wallop

Of note zinc held steady as precious metals and copper prices fell on Thursday with depressing information flowing out of the Fed and HSBC.

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Author: Kip Keen
Posted: Thursday , 20 Jun 2013

HALIFAX, NS (MINEWEB) -

As precious metals and copper prices plunged Thursday - but notably not zinc - there was blood on the streets for juniors especially, with a few gold producers getting the worst of it.

“We've got two negative headlines,” Raymond James analyst Adam Low said in an interview Thursday.

There was a spanking in gold after Ben Bernanke, Chairman of the U.S. Federal reserve dangled the prospect of slowing quantitative easing.

See: Gold plunges again: unleashes perfect storm for the bears

Meantime copper prices fell after depressing stats emerged from China.

Low noted that HSBC released a mid-month update of their Purchasing Manager's Index (PMI) in China with worsening numbers suggesting slowing manufacturing activity. It fell to 48.3 from 49.2, with anything under 50 suggesting a decrease in spending.

Undoubteldy HSBC's falling PMI exacerbated worries about a Chinese credit crunch as interbank loan numbers surged in China recently.

“Yes. Absolutely it feeds into the China fear story,” Low said.

Some junior gold producers were off by well over 10 percent (examples below), compared to seniors that were tracking more closely the fall in the price of gold.

Innoculated zinc

If the price of copper - hovering near three dollars a pound Thursday - fell on fears of a slowing economic engine in China, the price of zinc was obstinant. Low noted it remained flat, despite the fact China is the world's key consumer of zinc.

A few factors were at work holding up the price of zinc, Low and Haywood Securities analyst Stefan Ioannou said on Thursday.

For one thing, while zinc stockpiles in LME warehouses are near a million tonnes, this is down from 1.2 million a few months ago.

Furthermore the location of these stocks - if historically high - are in unfavourable locations, like New Orleans, away from zinc consuming centres. As Ioannou put it, the LME stocks are “optically high."

And meantime, for the first time in quite a while, monthly zinc production came in lower than consumption in April, Low noted.

Finally, Low and Ioannou see a coming crunch in zinc supply - a subject of some debate among analysts - with several leading zinc mines slated to run out of reserves. Indeed already this year the Brunswick zinc mine (2 percent of global supply) in New Brunswick closed and in 2015 the Century zinc mine in Australia (4 percent of global supply) is set to close.

In all Ioannou estimates over the next few years mines accounting for 10 percent of zinc supply, including the two noted above, will come offline, perhaps causing a price spike.

Bloody day by numbers - a few leading junior equities @ midday trading Thursday:

Junior gold miners hurt especially hard.

Junior Gold Miners
B2Gold - down 7 percent to C$2.25
Veris Gold - down 15 pecent to C$0.55
Osisko down 8 percent to C$3.59
Perseus Mining down 17 percent to C$0.63
Teranga Gold down 11 percent to C$0.62

It was much the same story for junior silver producers, though at mid-day it less brutal for them than for junior gold miners.

Junior Silver Miners
Fortuna down 6 percent to C$3.2
First Majestic down 2 percent to C$10.44
Endeavour Silver down 6 percent to C$3.62
Alexco down 3 percent to C$1.13
Silvercorp down 4 percent to C$2.06

Junior developers with sizeable gold, silver and copper resources did not escape the wrath of selling.

Juniors with Big Gold Deposits
Rainy River down 3 percent to C$3.43
Mag Silver down 6 percent to C$6.01
Lumina Copper down 4 percent to C$4.90
Seabridge down 6 percent to C$10.08
Pretium down 9 percent to C$6.85