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MMG says output from key Australia zinc mine to drop

Wednesday, 22 Jan 2014 | 9:50 PM ET

SYDNEY, Jan 23 (Reuters) - Output from Australia's Century zinc mine, the world's third biggest, could drop 5 percent this year as it nears the end of its operating life, exacerbating an emerging global supply pinch.

The mine will yield between 465,000 and 480,000 tonnes of zinc in concentrate in 2014 against 2013 output of 488,233 tonnes, said Chinese owner MMG Ltd.

The decline comes amid a supply deficit driven by rising galvanised steel production. Zinc is primarily used as a rust-inhibitor in the galvanising process.

MMG's nearby Dugald River mine is under development and was supposed to start yielding zinc in late 2015, partially replacing lost output from the Century mine, which MMG forecasts will run dry in mid-2015.

But MMG last month warned Dugald River would miss its start date due to poor ground conditions.

An additional A$57 million has been allocated to study problems at the project, according to MMG.

A global hunt is on to find new deposits of zinc as China buys more of the metal to rust-proof new cars and coat steel used to build bridges and skyscrapers.

Multinationals such as Glencore Xstrata and Belgium's Nyrstar, along with MMG are funding new mines from Africa to the Yukon in search of more metal.

London Metal Exchange zinc prices have tumbled as much as 19 percent in the last year, but the outlook is turning. In the last two weeks, the price has gone up by as much as 5 percent and was last standing at $2,076.25 a tonne.

The fourth quarter of 2013 appears to have marked the beginning of a new cycle in zinc characterized by undersupply, Morgan Stanley said in a report on Thursday.

"The combination of steady demand growth, declining mined and refined production, and falling exchange inventories brought our estimation of the stock-to-usage ratio to its lowest since 2010," it said.

MMG, which operates additional mines in Australia and Laos, forecast total output of 173,000-186,000 tonnes of copper and 600,000-625,000 tonnes of zinc in 2014.

Total production in 2013 was 187,738 tonnes of copper and 600,221 tonnes of zinc.

(Reporting by James Regan; Editing by Joseph Radford)