Where to start? Zinc will do

The Dow has just broken 10,000 to the downside. Big deal. Meanwhile this chart....

....is very bad news for the zinc sector. While 85c held previously there were plenty of higher cost miners who'd be able to rough it out, but once 75c/lb was established the news of mine closures started coming thick and fazt (note OzMin in Australia and this news yesterday adding to the throng).

But the break from 75/c bottom to under 70c now puts a whole new swathe of miners in jeopardy, and that includes zinc projects with relatively low cash cost projections. This is rapidly turning into a a hard landing scenario for miners. The fittest will survive.

Zinc mining is split into two main types of mine; there are those with Zn as its main product, and these are the ones under the most pressure right now. Take Blue Note (BN.to) which produces mainly Zinc, then some Lead and a bit of Silver. It's running a cash cost of over 90c/lb net by-products, and it doesn't need a genius with a calculator to work out that the company is hurting. Then there are other polymetallic mines that have Zn as a major income source but are by no means reliant on the metal. For example I was investigating the Fortuna Silver numbers last week, and noted that Net Smelter Revenue (which is basically what the miner gets for its wares), came in at double its cash cost per tonne of ore. This means there's plenty of breathing room for FVI.v and other miners in the same position right now. Zinc production won't grind to a halt at such mines.

The upshot here is that a hard landing will crush both demand AND supply. Once the dust settles, any demand pickup will get scant response from the supply side and prices are likely to spike back up. When this happens is the big question, and if you knew the timeline it would be your ticket to riches.

Zinc up, copper down

Dr. Copper couldn't hold its $3.30 level and dropped back yesterday, with the move being confirmed this morning and Cu sitting at $3.16. However, Otto's beady little eye is on zinc. Spot Zn has been the whipping boy of the BM complex for a while, but the clear indications of a bottom in prices just keep on geting confirmation added. The upmoves of yesterday and today have "healthy" stamped all over them.

In the last few weeks we've seen plenty of news about lower production forecasts for this year, and the Ausie metals people calling a 10% drop to already reduced numbers last week was just another example. It really does come down to good ol' fashioned Adam Smith supply & demand stuff; while the market surplus continues so do the low prices, but there is always a limit to this price drop, as miners stop producing so supply dries up, and I'm confident about saying that it's here (or already passed, really).

Keep thinking zinc, folks. It's that "buy while they sell, and sell while they buy" thing. Here's a re-run of Zn plays to consider.

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BWR.to Breakwater: High beta zinc miner in the Americas that's been pummeled to merry hell this last year. This one is playing the metal, but on steroids. A nice ST trading vehicle for the metal. Check the 1 year chart and 3 month chart to get a feel, and note the volume spikes.

BN.to Blue Note: Very cheap and very diluted. High cash costs at its Caribou mine. This is speculative, but risk/reward means you could try a few shekels (I have to say i prefer BWR)..

VEM.to Vena Resources: Just waiting on its enviro permit (any day now, sez the Peru gov't) and this thing will be the owner of a Zn mine making a profit,and that's even if Zn drops to $0.75, according to my casio. Stupidly cheap here. Remember that Vena is a site sponsor here. Also remember I don't reco dross.

LMC Lundin: Has other worries right now (example govt of DR Congo), but it's a traditional Zn go-to play.

VOLCABC1 Volcan: If you have access to trading the Peru stock market, look no further for your Zn exposure. This very large Zn producer is due a good relief rally. Plenty of Pb and Ag exposure too (as you'd imagine).