Some basic facts on the zinc market:

  • Global inventories are near decade low levels:
  • The global zinc market is currently in deficit despite global mine supply estimated to grow by 664,000 tonnes in 2018.
  • Analysts at Wood Mackenzie expect zinc prices to climb to $4,000/tonne (US$1.81/lb) in the third quarter of 2018 and $4,100/tonne (US$1.86/lb) during the first three months of 2019. Meanwhile, RBC sees zinc prices stabilizing near US$1.50/lb for the next couple of years before declining to US$1.25/lb in 2021: 
  • When measured in terms of days of consumption global zinc inventories are at critically low levels:

Fireweed Zinc (TSX-V:FWZ, OTC: FWEDF) released its maiden PEA last week and used a US$1.21/lb zinc price throughout the entire mine life. Some people felt that this wasn't conservative enough, however, considering that FWZ is at least five years from initial production (and quite likely more like seven years away) and the mine life is projected to be 18 years I think that US$1.21/lb is in fact quite conservative. 

I say this because the current spot price is US$1.38/lb and zinc prices are most likely to be influenced by global economic growth and global GDP growth averages about 3.5% annually (3.5% growth compounded over 20-25 years means that the global economy will be more than double its current size by 2040). As the global economy grows, demand for zinc is likely to grow, and in turn the zinc price will rise. 

Another question came up around who the potential acquirors of Fireweed Zinc might be. CEO Brandon Macdonald made it clear that FWZ is prepared to take the Macmillan Pass Project all the way into production, however, an attractive takeout transaction is the most likely scenario. I am definitely not a zinc market expert, however, with a little research I was able to generate a list of companies that might be interested in Fireweed (some more than others) either in a takeover scenario or in a JV scenario. In no particular order here is the list I've come up with:

Major global zinc producers:  

Trevali, Teck, Glencore, Vedanta,  South32.

Chinese zinc producers: 

Zijin, China Minmetals. 

Smelters (potential JV candidates): 

Itochu, Korea Zinc, Mitsui, Dowa.

Integrated groups: 

Boliden, Toho, Sumitomo.


Trevali Mining (TSX:TO) stands out to me as a potentially more likely acquiror than the rest of the pack. This is because Trevali is a mid-tier zinc focused producer that is growing and has recently expanded its Canadian asset base with its Caribou Zinc Mine in New Brunswick. Macmillan Pass would take Trevali's zinc production to another level considering that forecast zinc production at Mac Pass (years 1-7) is more than double the current annual production at Trevali's Caribou Mine. 

An acquisition by Trevali simply makes a lot of sense in many ways. Of course there are other players who could come to the table such as Teck or China Minmetals, however, if I had to bet right now i'd bet that Trevali is the most interested suitor at this point in time. 

A joint-venture (JV) with an Asian smelter could also make a lot of sense, although I am not sure of what kind of structure Fireweed would be amenable to (a chunk of cash in hand now in addition to larger payments in the future in return for a guaranteed concentrate stream?). 

I believe this summer's drilling program takes on even more importance considering the current challenging backdrop in the junior resource sector; it's more important than ever for FWZ to increase the size (and potentially the grade as well) of Mac Pass in order to make it stand out further as a highly desirable acquisition target for a mid-tier or major producer. 


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