(The author is a Reuters columnist. The opinions expressed are his own.)
By Andy Home
LONDON, Nov 6 (Reuters) - The Brunswick zinc mine in Canada finally ceased operating at the end of June.
It had been due to reach the end of its natural life years ago but former operator Xstrata just kept finding a bit more metal in the aging mine.
The era of major zinc mine closures is now finally upon us.
Glencore Xstrata (Other OTC: GLCNF - news) , as it now is, has also shuttered the Perseverance mine in Quebec. Unlike Brunswick, with its multiple stays of execution, this one closed to expected schedule.
Elsewhere, others are quietly exiting the stage.
Terramin's Angas mine in Australia has just gone onto care and maintenance after reaching "the end of its economic life at current metal prices". The company will keep looking for more resource but exploration so far has not turned up anything economically viable.
MMG had intended to compensate partly for the closure of Century by bringing on stream the new Dugald River mine, also in Queensland, over the end of 2015 and early 2016.
But that timetable has been blown. The company has put the project under review after finding "a number of complexities in the ore body".
Similarly, Terramin had intended to replace Angas with the Oued Amizour mine in Algeria but the project has fallen victim to disagreements with the Algerian joint-venture partners. Talks are continuing. So too are international arbitration proceedings.
RETURN OF THE BULLS
So is the bull zinc narrative back on track after so many false starts?
Andrew Michelmore, chief executive of MMG, certainly thinks so. Discussing the removal of an estimated 1 million tonnes from the mine supply chain over the next couple of years and the lack of ready replacement units, he suggested that most of the new identified projects "need well over $1 per lb" ($2,205 per tonne) to justify development.
On the London Metal Exchange (LME), three-month zinc was trading at around $1,930 per tonne on Wednesday morning. The last time it traded anywhere near $2,200 was in January this year and then only for a couple of weeks.
The pending mine supply crunch has triggered something of a zinc rush at the exploration and development stage.
"After peddling the zinc story for so long I'm hopeful we'll soon have our day in the sun," said Jonathan Downes, managing director of Ironbark Zinc Ltd, which is working on a project in Greenland.
Originally developed by the infamous Hunt brothers, Prairie Creek was just on the point of production before succumbing to the fallout from the brothers' disastrous attempt to corner the silver market.
The problem with such projects is that they are mostly several years away from production or, as Michelmore pointed out, need higher prices to justify development.
The inference is that mine supply will need to experience an apocalypse to force prices up to levels at which new supply is incentivised to enter the market.
It's an alluring narrative, particularly for anyone in the zinc production business, given years of supply surplus and resulting price underperformance.
But this remains a case of apocalypse pending rather than apocalypse now.
Not every operator is in the same boat as MMG and Terramin, struggling to offset production lost to natural mine attrition.
Glencore is a case in point.
Between them Brunswick and Perseverance last year produced 315,500 tonnes of contained zinc, a significant combined contribution to group production.
Yet Glencore has been able largely to mitigate that hit. It reported own-source zinc production of 1,061,000 tonnes in the first nine months of this year, down only 6 percent on the year-earlier period.
Expansions at its Australian operations and new mines such as Bracemac-Macleod in Canada and Perkoa in Burkino Faso have filled a significant part of the gap left by the two closures.
Global mine supply is still expanding, although the pace of growth has slowed to just 1.2 percent in the first eight months of this year from 6.8 percent last year, according to the latest figures from the International Lead and Zinc Study Group.
Even outside China, mine supply is flatlining rather than falling.
None of which necessarily undermines the medium-term bull story. As more "mega-mines" close over the coming period, the gap between supply and demand will only widen.
But there is one flaw in this script.
A PROBLEM OF VISIBILITY
China is the driver of global zinc demand growth but has also been the driver of gains in zinc mine supply in recent years.
The problem is that this is the most opaque part of the global supply picture.
Official figures suggest that domestic mine production surged by 13 percent last year and by another 14 percent in the first nine months of this year.
It's fair to say that there is a good degree of collective scepticism about the strength of that implied growth rate but the trend has been consistent, albeit possibly amplified somewhere in the number-crunching process.
Moreover, China may be sitting on significant raw material stocks after refined production in the country actually fell last year.
Certainly, imports of zinc concentrates show no signs of domestic shortfall.
Although running 7 percent stronger so far this year, they are doing so from a very low base, having fallen in each of the last three years.
Even MMG's Michelmore conceded that "at a certain price" China could be self-sufficient in zinc concentrates to feed its huge zinc smelter network.
The truth is that no one really knows, either exactly what is happening now or, more importantly, what is the potential Chinese mine supply response if prices do move higher.
The bull narrative for zinc mine supply, in other words, is skewed by the closures we can see rather than the new mines we can't see.
As such, it mirrors the refined zinc narrative, which is skewed by the falls in visible stocks on the LME rather than changes to off-market stocks.
Every now and again the market gets a reminder that there is still a lot of surplus metal around, most recently with the Oct (KOSDAQ: 039200.KQ - news) . 16 delivery of 75,000 tonnes onto LME warrant in New Orleans.
In other words, the era of zinc mine closures may well be here, but the era of higher prices is not yet guaranteed.
There is still a lot of surplus zinc, both in concentrate and refined metal form, to cushion the supply chain.
And then there is China.
That it will power zinc consumption growth over the coming period is not in doubt. To what extent it will drive a supply response to the accumulating mine closures in the rest of the world is, for now at least, an all-important unknown.
(Editing by Dale Hudson)