Australian miner Energia Minerals Ltd is racing to reactivate a forgotten Italian zinc mine to cash in on a potential recovery in the zinc market after years of low prices and supply glut. Major zinc producers face depleting deposits by year's end and are on the search for large replacement mines, but these will take years to reach production.
Energia's hopes it nimble strategy of quickly restarting the Gorno underground mine near Milan will enable it take advantage of a forecast doubling in zinc prices by 2017 - when Gorno is ready to restart. Energia began refurbishment work at Gorno in January. The mine was idled by Italian oil company ENI SpA in 1985 as part of a global exodus from metals mining.
Energia Managing Director Kim Robinson said to reactivate the mine will cost around $56 million and once up and running would yield 30,000 tonnes annually. "The way we see it, it's a purely supply driven price recovery for zinc," Robinson said. "The big companies are looking for replacement mega-mines and that requires taking a longer-term view on the zinc price than we have," he said. "Energia might only cost about 50 million euros ($55.7 million) to get into production with a pay back of less than two years."
Last week, private equity group Auctus Chillagoe bid A$32.5 million ($25.65 million) for Energia's closest peer, Mungana Goldmines, after it switched focus from gold to zinc. Zinc has risen 18 percent since hitting a one-year low in March and some analysts forecast greater gains if London Metal Exchange stockpiles continue to contract at the current pace.
From 1.22 million tonnes at the start of 2013, LME inventories have dwindled to only around 468,000 tonnes, roughly 8.5 days of consumption. "At the present rate, LME stocks will be exhausted about year end," said Beer & Co analyst Pieter Bruinstroop, who forecasts zinc peaking at around $4,000 a tonne in 2017 against Tuesday's price of $2,330 "Many companies will use the price spike to raise equity to bring a mine into production, but there are few that will be producing zinc within two years and will have zinc account for the bulk of their revenue," he said.
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