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Tuesday, March 11, 2008


Teck Cominco sees higher long-term zinc price

By Carole Vaporean

NEW YORK (Reuters) - As marginal zinc mines begin to shut down in the surplus environment projected for the Western World, prices will firm again, likely in the next year to 22 months, according to Canadian mining giant Teck Cominco Ltd. (TCKb.TO: Quote, Profile, Research) Chief Executive Don Lindsay on Tuesday.

"Zinc will go back up, it's a question of when," Lindsay told the Reuters Global Mining Summit in New York.

"If you roll the clock forward to December of 2009 -- 21 months away -- at that point, plus or minus six months, a number of mines start to shut down. And the Western World becomes quite tight," said the CEO of the world's second biggest zinc miner.

Western World is a term in mining circles that usually refers to all areas of the world except China.

The two key factors he said he was focused on were tighter supplies of Western World zinc because of mine shutdowns in a more difficult market and the possible imposition of an export tax on China's super-high-grade zinc.

Referring to Teck's own zinc mine portfolio, Lindsay said it has two marginal zinc mines currently under review for possible closure. Both lost money last quarter.

"I don't want to do that much longer," he said.

In addition, the executive surmises that an analyst's review of zinc mines would find about 10 Western World mines that might shut in the next couple of years.

"It hasn't occurred yet and we think when it does in combination with when China's position on export taxes gets clarified, those two factors will drive zinc much higher. But when that occurs we don't know," he said.

The London Metal Exchange MZN3 zinc price has fallen from its $4,600 per tonne all-time high in December 2006 to $2,580 a tonne at Monday's close.

"As the zinc price is down, by more than 50 percent, that makes a big difference," said Lindsay.

"We are reviewing those (marginal) operations and we might re-engineer them to shorten the mine life," he said, adding that the review might take several months.

If Teck Cominco shuts its two mines and Xstrata's (XTA.L: Quote, Profile, Research) large Brunswick mine in eastern Canada closes, Lindsay said those three operations alone would add up to 350,000 tonnes.

"There goes your surplus and you're into a deficit. Then all hedge funds would be playing zinc again," he said.

"We could end up having less zinc production two years from now. Which makes the market tighter and the price higher. So we'll probably make more money with less zinc production."

Xstrata's Brunswick mine, which in 2006 produced 272,000 tonnes of contained zinc, is the world's fourth largest and is projected to run out of reserves in 2010.

Lindsay said a survey of the top 10 zinc analysts are generally calling for a zinc surplus in 2008 and 2009 ranging from about 200,000 to 600,000 tonnes.

"If you see many more production disruptions there won't be a surplus in zinc. It doesn't take much to eliminate a 200,000 tonne deficit," he said.

He said the market produced 11.3 million tonnes in 2007.

On the positive side, he pointed out that LME zinc inventories have fallen to about 125,000 tonnes currently from over 700,000 to 800,000 tonnes 3 years.

The other key question is whether China chooses to impose a much anticipated tax on super-high-grade zinc exports, which would crimp supplies. China is one of the world's top miners.

"If they do do that, and China becomes a zero sum game relative to the Western World, it won't be that long before zinc becomes very tight again," said Lindsay.

Lindsay said he expects Teck Cominco's operating income this year to be close to its $1.18 billion made last year.


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