Pulacayo Project Feasibility Study - Apogee Silver

Pulacayo 1 000 t/d Phase I Feasibility Study - NI 43-101 Technical Report
090644-3-0000-20-IFI-100
LME alone (and with the SHFE sitting on another 330,000 tons as of 13 July 2012). Although a
share of this inventory will likely continue to be used in financing deals, the scope of these deals
is less than that for aluminum, the contango offered is lower, and the surplus is larger as a
percentage of the market, fundamental features that can be expected to cap any price rallies. As
a result, any gains foreseen in zinc prices nearby can largely be expected to be the result of
broader macro-economic sentiment, which will drive the entire LME base metals complex.
Zinc consumption has been strong, with global gains of almost 8% in 2011 and growth for 2012 to
2015 projected to average around 5% p.a. mainly due to expansion in galvanizing applications.
China will continue to dominate this market, accounting for more than 40% of global consumption
going forward, but other emerging markets are expected to support demand as well. In the
developed world however, growth is forecast to be flat to marginal.
Despite the zinc metal market being in considerable surplus, zinc mine/smelter demand remains
relatively well balanced, with the consequential low concentrate treatment charges adding
support to most miners who are still operating in a cash positive environment, and discouraging
any production scale back. This relatively low treatment charge environment is expected to
persist with, as noted earlier, the impending closures of some major mines in the coming years.
And while growth in Chinese mine production has been substantial over the years, most of its
mines are small (less than 30 kt/y) and, with diminishing by-product credits and combined zinclead
grades typically less than 10% (and often below 5%), there may prove to be limits to this
growth profile. Nonetheless, China’s smelting capacity continues to expand and, even after
accounting for secondary production, the gap between domestic mine supply and primary refined
production in China will continue to require significant concentrate imports (expected to account
for some 20% of 2012 to 2015 smelter requirements). This is expected to keep the concentrate
market in relative balance and hold treatment charges in a tight range around current levels.
With low treatment charges and comparatively high metal prices supportive of continued mine
supply, the two “markets” – zinc concentrate and zinc metal – are forecast to remain in
divergence until at least 2014 to 2015. By then however, the impact of the various scheduled
mine closures is forecast to begin feeding through into tightness in the metal market – an
extended period to wait and unfortunately, a similar outlook that has disappointed several times in
the past.
Further detailed discussions of the zinc supply-demand projections will not be undertaken for the
purposes of this report. Nonetheless, the outlook is based on market fundamentals largely in line
with those set out in Table 19.1, views consistent with those shared by many zinc market
analysts.
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