Peter Koven, Financial Post George Pirie can only watch as investors push his stock lower and lower amid a crumbling zinc market. But he is confident the selling won't last. He is chief executive of Breakwater Resources Ltd., a Toronto-based metal producer that has been hit as hard as almost anyone by the sinking zinc price which has plunged more than 20% in the past 30 days, and 50% this year. Breakwater shares closed at $1.65 yesterday, and are down by more than half since mid-October because of falling prices and operational problems. "Because zinc is ubiquitous and used everywhere, it's a bit of the 'canary in the gold mine' type of vehicle," Mr. Pirie said in an interview. "It'll be the first to suffer the consequences of a nervous market." Zinc prices are falling because the global supply picture is improving, with lots of projects coming online or ramping up production. While there are no consistent numbers available, institutions have forecast surpluses of hundreds of thousands of tons of refined zinc in the next three years. Increasing supply, along with general market turbulence, has pushed the zinc price down to US$1 a pound, after it hit highs above US$2 early this year. Zinc industry executives see this as a temporary setback. "We're going through a bit of a weak period here because there are overlays on oncoming production over the next year or two. But at the end of the day I think zinc prices will strengthen over the next three to four months," said Colin Benner, vice-chairman of Lundin Mining Corp. and former CEO of Breakwater. The tricky thing about the zinc market, experts said, is it is extremely difficult to follow. While nickel and copper are produced by large companies that provide a lot of information, the zinc market has more smaller players like Breakwater. For largest players, zinc is essentially a byproduct. And the biggest producing country is China, which does not always provide the most reliable numbers. With less public information available, zinc can be more susceptible to what Mr. Pirie calls "the vagaries of the marketplace. It lends itself to huge speculation with hedge funds. And they can take massive short positions and drive the price down where the fundamentals don't support it." One reason he feels the market could quickly turn around is China. The government is talking about eliminating a 5% export rebate on certain kinds of refined zinc and slapping on an export tax in its place, a move that would slow growth in a polluting industry. The Chinese have made a similar intervention in the lead industry, and prices soared afterwards. The other thing that encourages industry players is the demand picture is still looking strong. Canaccord Adams is forecasting consumption growth of 4.1%, 4.2%, and 5.4% in the next three years. pkoven@nationalpost.com And This Analyst says this may be ideal time to buy copper and zinc stocks Peter Koven, Financial Post He points out that the intermediate copper and zinc producers in the UBS coverage universe are down about 19% in the past month. The primarily zinc equities like Hud-Bay Minerals Inc. and Breakwater Resources Ltd. have been particularly hard hit. "We find the current valuation metrics for the highly zinc levered names (Breakwater) and (HudBay) to be particularly attractive at current levels," he wrote in a note to clients. "These equities appear oversold relative to the move in the commodity and appear to be discounting zinc prices significantly below current spot levels." He also points out that takeover activity in this space remains a strong possibility as the base metal companies stockpile cash. Mr. Lesiak estimates that the base-metal firms UBS covers will hold an estimated 22% of their current market cap in cash at the end of next year. HudBay is the standout with a whopping 42%, according to his calculations. Mr. Lesiak also revised his estimates on a number of stocks to reflect changes in the forward curve pricing for zinc, copper, nickel and gold. He cut his target on Hud-Bay (HBM/TSX) from $30.50 to $28 a share, and Breakwater (BWR/TSX) was lowered from $3.25 to $2.50 a share. On Friday, HudBay shares closed at $21.50, while Breakwater shares ended the week trading at $1.79.
Breakwater suffers 'vagaries of the marketplace'
Turnabout coming, Zinc producer says
Published: Friday, November 23, 2007
Published: Saturday, December 01, 2007
With copper and zinc prices under pressure and the equities selling off dramatically, this could be an ideal time to increase exposure to those stocks, according to UBS analyst Tony Lesiak.
Tuesday, January 22, 2008
Looking back:Turnabout coming, Zinc producer says
Fed announced an emergency rate cut of 75 basis points to 3.5 %
Banks slash rates as markets crash
John Morrissy, CanWest News Service
Published: Tuesday, January 22, 2008OTTAWA_- With world stock markets reeling at the prospect of a sharp downturn in the U.S. economy spreading around the globe, the Bank of Canada and the U.S. Federal Reserve both slashed interest rates on Tuesday.
Before markets opened, the Fed announced an emergency rate cut of 75 basis points to 3.5 per cent. It also lowered the discount rate it charges on direct loans to banks by 75 basis points to four per cent.
Meanwhile, the Bank of Canada reduced its key lending rate 25 basis points to four per cent.
An Indian broker reacts while trading at a stock brokerage firm in Mumbai, January 22, 2008. Shares from Sydney to London sank for a second day on Tuesday, dragging commodity prices with them and promising similar falls for Wall Street as investors abandoned assets exposed to the risk of a global economic slowdown.
Reuters
News of the Fed rate cut failed to stave off sharp declines in U.S. stock markets, with the Dow Jones Industrial Average falling 302.80 points, or 2.47 per cent to 11801.54, by 9:51 a.m.
The Toronto Stocks Exchange rallied however, up 263 points to 12,395, after suffering a 600-point loss the day before.
The Canadian dollar rose 67 basis points to 97.48 cents US.
"Financial market conditions have deteriorated since October,"_the bank said in an accompanying statement, "leading to a tightening of credit conditions in industrial countries. Given this, and a deeper, more prolonged decline in the U.S. residential housing sector, the 2008 outlook for the U.S. economy is now significantly weaker" than forecast in October.
While the bank said it expects domestic demand to remain strong in Canada, it projects weaker growth in 2008 than previously forecast. It said it expects somewhat stronger growth in 2009. It has also slashed its inflation expectations, saying both core and total inflation should fall below 1.5 per cent by the middle of this year before returning to the two per cent target by the end of 2009.
"In line with this outlook, the bank has decided to lower the target for the overnight rate and further monetary stimulus is likely to be required in the near term to keep aggregate supply and demand in balance and to return inflation to target over the medium term."
The larger U.S. rate cut "is the first rate cut of this magnitude since Oct. 2, 1984, and the first inter-meeting cut to the fed funds rate since September 17, 2001 (just after 9/11)," said Eric Lascelles, chief economics and rates strategist for TD Securities.
"The magnitude of the action suggests that the Fed now treats both the economic and financial market conditions with a great deal of seriousness, and that the Fed was either well behind the curve or believes that the magnitude of the situation is the most serious in several decades."
The Bank of Canada move, one of the last by outgoing governor David Dodge, comes as a rout of global markets continued to dash value from stock values. The Nikkei stock average closed down 5.65 per cent and Hong Kong's Hang Seng index lost 8.65 per cent a day.
European markets recovered after falling more than 4.4 per cent, with the pan-European FTSEurofirst 300 index up 0.6 per cent at 1,287.92 points after the Fed's announcement.
The subprime mortgage market downturn, largely blamed for much of the global liquidity crisis, wreaked more damage Tuesday on U.S. bank earnings. Bank of America Corp, the second-largest U.S. bank, said on Tuesday that its fourth-quarter profit was hurt by more than $7 billion of losses tied to poor trading decisions and mounting credit woes.
Wachovia Corp. said profit fell 98 percent to its lowest since 2001 after write-downs for bad loans and mortgage-backed securities.
Oil markets were not spared as crude was off $3.31 to $87.26 as expectations of slowing industrial demand sent the contract for light, sweet crude for February delivery down $3.31 to $87.26 a barrel in electronic trading on the New York Mercantile Exchange by midday in Europe.
Shanghai copper and zinc futures fell by their four per cent daily limit as fears that the risk of a U.S. recession could eat into global growth
