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Zinc Time to Shine Zinc Time to Shine

Zinc was the second-best performing commodity in 2016, with a staggering 65.7% return. The greyish metal primarily used in galvanizing steel is off to a hot start in 2017, up another 12.5% to $1.30/lb. “For us zinc is still the most exciting story out there “ Don Lindsay, President and CEO, Teck (January 26, 2017) The reason for the zinc price rise is one of the basic principles of econom...

Zinc was the second-best performing commodity in 2016, with a staggering 65.7% return.
The greyish metal primarily used in galvanizing steel is off to a hot start in 2017, up another 12.5% to $1.30/lb.

“For us zinc is still the most exciting story out there “ Don Lindsay, President and CEO, Teck (January 26, 2017)

The reason for the zinc price rise is one of the basic principles of economics – supply and demand.

Zinc inventories (supply) have been falling like a rock. Inventories last February on the LME were ~500,000 tonnes and are now down to ~380,000 tonnes.

Two of the largest zinc mines in the world have closed in the last few years (Century and Lisheen) due to ore depletion, removing ~4 % of world supply.

The world’s largest mining company, Glencore, significantly helped the zinc market as well cutting production by 500,000 tonnes in late 2015. The cuts were made because of the low price of zinc at the time. Glencore has yet to restart production at these mines and this will be a major factor for investors in zinc to keep an eye on.

Zinc demand has steadily increased throughout the last several years and and is expected to increase by 2.1% to 13.85 million tonnes in 2017.

The zinc price is now at a 5 year high of $1.30 per pound as inventories are also near a 5 year low at ~380,000 tonnes (LME). Shanghai Futures Exchange stocks have also declined substantially in the last 3 years.

How high can zinc go in 2017?

As inventories continue to decrease along with no new mine supply expected, a pinch point appears to be coming for the zinc price.
“The next two years, 2016 and 2017, represent the ‘pinch point’ of concentrate supply, with mine-closure related cuts expected to outweigh new output from projects.” Wood Mackenzie Analyst, Jonathan Leng.

Zinc price forecasts

• Scotiabank is forecasting zinc prices to average $1.35/lb in 2017 and $1.55/lb in 2018.
• Wood Mackenzie, a leading research firm has a peak price target of $4000 US/tonne ($1.80 per lb) in 2018.
• Bank of Montreal has forecasted an average price of $1.50 per lb from 2017-2019.

If these forecasts are anywhere near correct, the zinc price still has tremendous upside from current levels.

The best way for investors to play a zinc price move would be to invest in zinc equities.

“I definitely think it is the right time to do so [invest in the zinc market]. About the only way to do so is through zinc equities, whether you’re looking at the major producers or some of the junior explorers there are not a lot of options out there for zinc.” Brien Lundin, editor of the Gold Newsletter

Investors have three different ways to play an investment in zinc stocks – producers, developers, and explorers.

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Gold Miners are Running Out of Metal Gold Miners are Running Out of Metal

Gold’s had a roller-coaster year, surging as much as 30 percent before giving up the bulk of those gains. But one trend has been consistent: mining companies are finding it harder to dig up more of the precious metal. Dwindling discoveries Even though producers’ exploration budgets surged more than 10-fold to $6 billion a year in the decade to 2012, new finds are in decline. The amount of go...

Gold’s had a roller-coaster year, surging as much as 30 percent before giving up the bulk of those gains. But one trend has been consistent: mining companies are finding it harder to dig up more of the precious metal.

Dwindling discoveries

Even though producers’ exploration budgets surged more than 10-fold to $6 billion a year in the decade to 2012, new finds are in decline. The amount of gold discovered last year was down 85 percent compared with 2006.

Capex cuts

To cope with bullion’s 41 percent price plunge from a record in 2011, miners have cut capital expenditure. That’s shortened the lifespans of many mines as firms haven’t been able to build the infrastructure needed to access more ore.

Falling reserves

Because of fewer discoveries, reduced mine life and a lower gold price, the amount of known metal that’s economically worth mining is falling. Major producers’ reserves have slipped 40 percent since 2011.

Supply crunch coming

Annual production might be near a record, but it’s not expected to last for long. Mine supply will peak in 2019 and keep falling through at least 2025, according to BMO Capital Markets. Randgold Resources Ltd. Chief Executive Officer Mark Bristow is among those expecting so-called peak gold in the next few years.

But there’s a caveat: Annual mine output totals less than 2% of all the gold that’s thought to have ever been produced and unlike commodities such as oil or copper, most of that gold is sitting in vaults or in jewelry form. That makes it easier for old metal to come back into the market if supply tightens.

The race for reserves: M&A

With their industry facing a tougher production future, gold mining CEOs have been on the hunt to buy up competitors to replace dwindling reserves. Deals for bullion producers have topped those for other commodities so far this year.

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Here is Why Gold is Headed Higher in 2017 Here is Why Gold is Headed Higher in 2017

In more ways than one, 2016 was a roller coaster year. One need only look at gold’s performance to confirm this. After rallying more than 30 percent in the first half, the precious metal stalled in the days before the U.S. election, then retreated on a weekly basis, under pressure from a strengthening dollar and tightening monetary policy. Gold is now down more than two standard deviations from ...

In more ways than one, 2016 was a roller coaster year. One need only look at gold’s performance to confirm this. After rallying more than 30 percent in the first half, the precious metal stalled in the days before the U.S. election, then retreated on a weekly basis, under pressure from a strengthening dollar and tightening monetary policy.
Gold is now down more than two standard deviations from its mean, or average, dollar amount. The reason I show you this is because, in the past, this was a good time to begin accumulating, as mean reversion soon followed.

Looking Ahead in the Near Term

U.S. debt dynamics are expected to turn positive for gold in 2017. That’s according to ICBC Standard Bank, which makes the case that the costs of higher yields are being overlooked. The Congressional Budget Office (CBO) calculates that net interest payments on the nearly $14 trillion of U.S. debt will amount to about $250 billion in 2016—or 1.4 percent of U.S. gross domestic product.
«If we apply an 80 basis point increase to the CBO’s net interest forecasts and keep the other variables unchanged, then by 2026 the Treasury would be paying an additional $185 billion in interest annually, and interest will have increased to 3.3 percent of GDP», the bank writes, with emphasis my own.

Looking Ahead in the Long Term

Gold’s rarity is one of the key reasons why it’s so highly valued across the globe and for most of recorded human history. Back in August, I shared with you that the precious metal makes up only 0.003 parts per million of the earth’s crust.
«Peak gold» has been a topic for years now, with major discoveries on the decline. According to a recent Bloomberg article, the number of new gold deposits discovered in 2015 was down a whopping 85 percent since 2006.
This means annual production is expected to peak in 2019, followed by a steady decline until at least 2025.

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Avellana Gold Participated in Mines and Money London International Conference Avellana Gold Participated in Mines and Money London International Conference

Participants from 76 countries recently attended the largest mining investment conference Mines and Money London held in the city. Present at the event was Director General of Avellana Gold Brian Savage. «This format helps us exchange experience with key players on the market, discuss and assess new investment prospects in mining», - Brian Savage said. During the event the main trends on r...

Participants from 76 countries recently attended the largest mining investment conference Mines and Money London held in the city. Present at the event was Director General of Avellana Gold Brian Savage.

«This format helps us exchange experience with key players on the market, discuss and assess new investment prospects in mining», - Brian Savage said.

During the event the main trends on raw materials market were discussed along with achievements and prospects for strategic investors. Several junior and brownfield projects were presented. A number of companies reported on beginning of exploitation of new gold, silver, non-ferrous and liquid metals deposits in 2016-2017.

Leading strategic investors, investment banks and financial advisors participated in the conference. They discussed current international experience of project financing and the prospects of attracting investment on international stock markets of Great Britain, Canada, Australia and others.

It was the first meeting in three years dominated by a positive atmosphere, bold statements as to attraction of funds for exploration of new deposits, expansion of the geography of investment, chiefly due to Africa and developing markets. Unfortunately, Ukraine in view of the situation with ownership and absence of stable fiscal conditions is still seen as the worst of jurisdictions (in some aspects even worse than such countries as Columbia, Mali, Ethiopia). Georgian, Armenian, Kazakh, Russian and Mongol projects generate a more substantial interest. At the same time this drastically low assessment is not factually accurate and creates significant opportunities for Ukraine to bring about substantial changes already in the next few years.

It should also be mentioned that among the sponsors of Mines and Money London was Ukrainian company UMG founded in 2016 by the largest financial and industrial group in Ukraine – System Capital Management.

New Prospects of Ukrainian Gold New Prospects of Ukrainian Gold

Interview with Nikolay Gozhik, Head of Business development, Ukrainian office representative of Avellana Gold. - What do you think about gold mining in Ukraine – what are the problems and prospects? Muzhievo gold deposit is in fact the first project on polymetal mining in the history of independent Ukraine. Is the country actually ready for such a large-scale project? - Mining is currently ...

Interview with Nikolay Gozhik, Head of Business development, Ukrainian office representative of Avellana Gold.

- What do you think about gold mining in Ukraine – what are the problems and prospects? Muzhievo gold deposit is in fact the first project on polymetal mining in the history of independent Ukraine. Is the country actually ready for such a large-scale project?

- Mining is currently experiencing lack of investment as it is connected with many risks. We can name up to ten risks in total.
Firstly, there is a risk of confirming deposit during mining. It depends on how professional the exploration works were. Secondly, there is an environmental risk, i.e. how acceptable specific technologies for maximum gold extraction are. Thirdly, there are risks connected with stability of world prices for main metals of the deposit. The risks of a country are also of importance, namely stability of subsurface resource use, significant volatility of currency exchange rate. It is made even more complicated by the fact that the state acts as a compulsory buyer-counteragent of a part of resources.
There are many promising objects in Ukraine which may be interesting for investors. We have gold deposits and gold sites in central Ukraine. We have deposits of rare metals which are in high demand in the world. We also have deposits of lithium, beryllium and others. But Ukrainian judicial system and tax laws scare potential investors. There are no guarantees of license terms and regulatory rules stability in the sphere of subsurface resource use during project implementation.

- As far as we know it is the first Avellana Gold project in Ukraine.

- From the outset we stressed that Avellana Gold is an ideal company for gold mining in Ukraine. Namely, for Zakarpattia deposits, the industrial value of which has been confirmed. In fact, financing is given for implementation of this very project. And if the first project is a success, Avellana Gold will become the first junior mining company to have achieved positive results in Ukraine. I mean a company which is financed by private and public capital and is created by geologists with an extensive experience in the field. Most foreign companies employ the same principle as Avellana Gold does, particularly those which develop world-class projects.

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https://goo.gl/6bP1I9