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Gold/Mining/Energy : Silver Bull Resources, Inc. -- Ignore unavailable to you. Want to Upgrade?

To: Mr. Aloha who wrote (1408)	12/18/2007 12:39:16 PM
From: Night Trader	Read Replies (1) \| Respond to of 5637

Well I suppose it can effect financing indirectly like you say but more through misunderstanding than anything else. Anyway this is from the world's #2 zinc producer: Zinifex Annual General Meeting 2007 26 November 2007 INDUSTRY OUTLOOK Let me now move on to review the forward market for our products. Forecasting future metal prices is very challenging if not impossible. There are professionals who do this for a living. We are generally inclined to leave the forecasting to them and then to support their view, or otherwise, based on our own market intelligence. Most of the data that you will see in this section is sourced from a London based Company called Brook Hunt. ZINC AND LEAD PERFORM The first slide I want to show you compares the performance of zinc and lead over the past year against the long run average price for these metals. As you can see prices for both metals were exceptional. If I had a comparable chart for Copper Silver and Gold, metals that also contribute to Zinifex's revenue, you would see a similar story - prices for all Zinifex's major metals were well above long run average. So what factors will influence zinc prices in the year ahead and beyond? LME ZINC STOCKS AND PRICE There are easily explainable reasons for zinc's performance. Zinc stocks globally have been falling dramatically over the past 3 years. This slide shows that London Metal Exchange zinc stocks fell below 100,000 tonnes which is less than 3 days supply at current consumption rates. Historically this is a very low level. The laws of economics tell us that as a commodity becomes scarcer its price will rise. This has certainly been the case until recently. This year we have seen zinc stocks continue to decline but zinc prices have retreated from their highs last November. So the laws of economics seem to have stopped working. What else is driving the zinc price? I believe that the forward outlook and sentiment have played a big part. ZINC MARKET BALANCE Turning to the medium term horizon of the next 2 years, most market forecasters are predicting that the zinc market will swing from a deficit position to a surplus in 2008. Additional zinc supply is expected to come from a few new mines, the largest of which is in Bolivia, modest expansions at most existing mines and several mothballed mines being bought back into production. If Brook Hunt's view is correct then it is likely to mean that the currently tight zinc market will ease and there will be a rebuild in zinc stocks. The market is concerned about this outlook and has adjusted today's zinc price to reflect this concern. What are the risks to this outlook? In our view the biggest risk to this picture is that the supply side will under deliver. Over the past 3- 4 years we have consistently seen supply fall short of expectations through a combination of projects being delayed and struggling to reach full capacity as well as production interruptions at existing mines. A significant factor behind this supply shortfall is the current boom in the resources industry that has created a major shortage in skilled people such as engineers, project managers and tradespeople as well as long delays in procuring vital equipment such as ball mills, haul trucks, shovels and even the tyres. By contrast in the next 2 years more production is expected to come on stream than we have seen over the last 3-4 years combined. Given that the same forces that have caused delays previously are still present, you would have to question whether it is realistic to expect all of these projects to be delivered on time and in full? It is also worth noting that many of these projects were committed to when the zinc price was much higher than today. Operating costs have risen strongly over the past 3 years. Our estimate is costs have increased by at least 10% per annum during this time. Some of these projects are high cost, designed to capitalise on a period of good zinc prices. So is it reasonable to expect that some of this capacity will close when prices fall below the cash cost of operating? Finally the demand outlook is strong. Driven by China, growth in zinc consumption along with most commodities has exceeded most forecaster's expectations. We see no reason to change this outlook. The reason for our confidence is that iron ore prices are expected to increase next year. This suggests that steel production in China will continue to grow strongly. This is good for our commodity, zinc, as a portion of all steel produced is galvanised. So what does this mean for zinc prices? The market has already priced a substantial increase in zinc supply next year. If we are right and new supply of zinc falls short of expectation then zinc prices may have overshot and may recover some of the recent fall. mineweb.com