This is an absolute must read. It is a very well presented article on why MMGG is one of my largest holdings:
Great investments with tremendous potential in a modernizing world.
Monday, August 28, 2006
Why We Think Several Companies will Try to Buy Metalline Mining’s Zinc Project
State of the Zinc Market
As we mentioned 3 months ago, there’s a worldwide zinc crisis. As you can see from the zinc production and consumption statistics for the first half of 2006 from the ILZSG (International Lead and Zinc Study Group), zinc consumption is far outpacing zinc production, led by strong and consistent growth in demand in Asia. China’s zinc demand is forecasted to increase by 56% by 2010 , exasperating the current supply crisis. This article from early this year does a good job outlining the case for zinc and zinc stocks.
The below charts of zinc consumption by continent and LME zinc inventories over the last few years help illustrate this current situation:
Zinc consumption has continued to grow so much despite the meteoric rise in the price of zinc, with most of that growth coming from Asia. The average price of zinc for the first half of 06 was more than double the price for the first half of 05, yet Asian consumption still grew 5% during that period. With China building the equivalent of a city the size of Philadelphia every month, with its standard of living still nowhere near that of the West, and with the enormous savings they have, it's hard to imagine Asian consumption slowing for more than a blip on their long-term growth path.
Worldwide consumption exceeded worldwide mine production by 5.44% in H1 06. Asian consumption exceeded Asian mine production by 42.23%, as China become a net importer of zinc in 2004. This excess of consumption over production is reflected in the precipitous decline in LME zinc inventories since 2004. At the current rate of decline, the LME will be out of zinc within months, escalating the severity of the crisis.
Largest Zinc Projects in the World
Metalline Mining's (MMGG's) Sierra Mojada could be the second biggest new zinc project in the world for years to come. Sierra Mojada's similar in size to Apex Silver's San Cristobal in Bolivia on this list of big zinc projects:
The biggest zinc project (by far) is Mehdiabad in Iran. They're currently trying to get financing now for their $1.6 billion in capital expenditures, during this time of political crisis there. If that huge project fails to get to production, that's 6% of the expected world supply of zinc that won't be coming, which would be extremely bullish for zinc and MMGG. Given the enormous Asian demand and the quickly declining zinc inventories, it’s hard to imagine a zinc supply surplus over demand in coming years even if there’s a severe worldwide slowdown.
With many zinc mines scheduled to cease production in coming years, zinc miners with multi-billion dollar deposits in safe areas of the world coming into production during that time should do extremely well, as they help fill the zinc supply gap:
It’s no wonder zinc producers are on the hunt for world class zinc deposits.
What Makes Metalline Mining’s Sierra Mojada Zinc Project Unique
Anglo American plc’s Skorpion mine in Namibia, Africa, is the lowest-cost zinc producer in the world, producing zinc at a cost of about 25 cents/pound. The Skorpion mine is the first and only mine in the world using the solvent extraction electrowinning process for extracting Super High Grade zinc (SHG zinc is 99.995% zinc) from oxide zinc ore. Green Team International (GTI) completed the feasibility study for Skorpion and then designed, supervised the construction and operated the mine and extraction plant through initial production and until they were at 90% of capacity, at which point they turned over operations to Anglo American.
Metalline Mining has hired GTI to do the feasibility study at Sierra Mojada in Mexico, as their experience with the unique process should make going to production almost a “turnkey” process. Using a proven team to implement a proven process that yields the lowest-cost zinc in the world, in one of the largest zinc projects in the world, in a safe area of the world, makes Sierra Mojada a one-of-a-kind project that’s extremely attractive to larger mining companies.
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