Heavy metal fans tend to put their investment cash in gold or silver, but the wise contrarian investor looks a little deeper into the Earth’s crust for hidden treasures. Today let’s examine the winners in the zinc game.
Why Zinc Is So Valuable
If you’re used to seeing zinc in the cough and cold aisle at the grocery store, you may be surprised to learn that it does more than boost your immune system. It’s actually the 4th most commonly used metal in the world (after iron, aluminum, and copper). Just as small doses of zinc have been used to ward off viruses in humans, zinc galvanizing prevents rust in iron or steel – and that process drives 60 percent of global zinc production.
Zinc alloyed with copper is better known as brass, which is widely used in plumbing, auto manufacturing, electronics and other common items around the house. The third most common use is for zinc oxide, which is a key component in the manufacture of rubber and lubricants.
According to Credit Suisse, which has produced several reports on the investment quality of various metals, since 2000 zinc has returned to trading 15 percent above its 110 year average.
In comparison with indexed base metal prices, zinc broke away skyward starting in 2016 with expanded mining, smelting and production facilities in China, Ireland, and Peru.
At the time analysts credited the spike to supply restrictions. As Century and Lisheen mine reserves were exhausted, Glencore suspended 500 kt zinc production until the market strengthened.
In 2018, it looks like zinc prices could be headed north of $2,700 per ton, its high in 2010/2011. At the end of 2017, zinc briefly cracked the $3,000 per ton mark. All of the construction in China and the Pacific Rim more generally has been a significant factor over the past decade or more, and that trend is not going away any time soon.
What Are Some of the Best Zinc Stocks?
Any discussion around investing in zinc will surface a few common companies:
Teck Resources (NYSE: TECK) – From their HQ in Vancouver, Teck Resources Ltd. has a clear view of resource usage both in the US and across the Pacific.
It is a diversified resource company that organized around the mining and mineral development of zinc, copper, steelmaking coal, and other forms of energy production.
Recently it branched out into rare earth metals like germanium and indium, which you may recognize from their roles as essential to devices in telecom and next-stage electronics for IoT.
In particular, pay attention to their zinc operations related to lead smelting and their many refining facilities. They have been in business since 1951.
HudBay Minerals (NYSE: HBM) – As the name suggests, this is another Canadian firm, headquartered in Toronto with working mines in Peru and development projects in Arizona.
It has only been in operation for 22 years, so you could consider them as the new kid on the block, albeit with lots of potential.
Zinc and copper production, both concentrates and base metals, are their specialty, but they also are working on the discovery and marketing of a wider range of metal ores.
In line with most new entities born in the 1990s, HudBay Minerals is concerned with social responsibility and environmental impact.
Hecla Mining (NYSE: HL) – If you prefer to keep your investments within the lower 48, Hecla’s central base is in Coeur d’Alene, ID, which operates four main business segments: Lucky Friday, Greens Creek, Casa Berardi, and San Sebastian.
Hecla mines feature gold and silver production, as well as zinc. It develops unrefined precipitates and bullion bars for precious metals traders.
The Lucky Friday operation is close to home in Idaho while the Greens Creek development is on Admiralty Island off the coast of Alaska.
The Casa Berardi piece is in Quebec, Canada, and the last mine is in Mexico, giving them easy access to all North American markets.
What You Need to Know About Zinc Mining Stocks
Wood Mackenzie’s Global zinc long-term outlook Q3 2018 included the prediction, “Such low stocks are forecast to provide fundamental support to the zinc price which is forecast to recover from current levels during the course of 2019 reaching a cyclical high in 2020.” However, they also intimated that zinc could hit $4,000 per ton this year, which now looks unlikely.
Many factors affect zinc futures, including construction trends in the developing world, alternatives to iron and steel that require zinc for resiliency, smelter utilization rates with more efficient refinement processes, housing starts, disposable incomes for home improvement, and auto production futures.
Uncertainty introduced by trade wars and trade wars are other variables affecting zinc prices. As a result, investors might prefer to hold zinc as a part of an ETF, spreading the risk among commodities like lead, nickel, and copper. There are no pure play zinc options, as even mining and production companies spread their risks across a range of ores.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.