Healthy price gains for zinc and copper this year, and gold rocketing through the US$1,300-per-ounce threshold on Aug. 28, is good news for Alaska’s mining sector.
Together, zinc and gold account for more than 80 percent of the value of metals mined in Alaska – silver and lead account for most of the balance. Copper, on the other hand, is set up to play an important role for the future of mining in the state.
Gold rockets above $1,300
Entering 2017 at US$1,151/oz, gold made steady gains through the first half of the year – hitting US$1,294 in early June. It wasn’t until North Korea took the provocative step of firing a missile over Japan that the precious metal broke through the US$1,300/oz barrier.
Gold has approached the US$1,300/oz mark four times this year, but did not crack the barrier until Aug. 28.
While Korean Peninsula unrest helped to push gold through the psychological ceiling, analysts believe that the precious metal’s gains are being driven by more than safe-haven demand and expect the precious metal to climb closer to US$1,400/oz without added geopolitical pressures.
“Gold seems to have benefited from the tensions, currently trading at a nine-month high. However, most of the gains in the precious metal occurred before the missile launch, meaning that there are different factors supporting prices,” FXTN Chief Market Strategist Hussein Sayed penned in a Tuesday morning report.
Before North Korea lobbed a missile over Japan, Sayed predicted, “If gold gathers momentum and manages to close the week above $1,300, I believe we’ll be seeing another leg higher, with a potential to test 2016 highs, around $1,375.”
Sayed and other market analysts say a number of factors – weak US Dollar, indications the Federal Reserve indicating a slow interest rates increases and a seasonal increase gold buying due to gold-buying holidays in Asia – are fundamental factors that will likely keep gold moving toward the US$1,400/oz mark.
Rising tensions on the Korean Peninsula could push demand for the safe-haven metal even higher.
Currently, about 900,000 oz of gold per year is produced in Alaska. This is expected to more than double if the Donlin Gold project goes into production at the 1.1-million-oz per year levels predicted in a feasibility study for the project.
Permitting for Donlin Gold is expected to be completed early in 2018. Donlin Gold partners – Barrick Gold Corp. and Novagold Resources Inc. – are expected to make a formal decision on developing a mine at this 39-million-oz gold project in Southwest Alaska in the coming months.
Fundamentals push zinc up
While gold has risen a healthy 15 percent in 2017, the upsurge in zinc prices has been even more impressive.
This week, zinc price topped US$1.40 per pound, which is roughly an 18 percent increase over US$1.20/lb levels going into 2018 and the highest price for the galvanizing metal in a decade.
A rally in zinc prices has been predicted since the closure of two large zinc mines – Century in Australia and Lisheen in Ireland – wiped out more than 600,000 metric tons of the world’s annual supply of the galvanizing metal in 2015.
Lackluster global economic growth, however, dampened the demand side, delaying the rise.
Analysts predict that zinc demand will outweigh supply, pushing prices higher.
In its Aug. 22 commodities report, Scotiabank said “zinc likely has more room to run before reaching the peak of its cycle.”
The Canadian bank, however, believes that despite the strong fundamentals zinc “prices may temporarily fall back in sympathy with the broader metals market.”
Red Dog, a high-grade mine operated by Teck Resources Ltd. on NANA Regional Corp. in Northwest Alaska, produced roughly 1.26 billion lb of zinc in 2016, which is about 5 percent of the world’s global supply.
While zinc is the primary metal produced at Red Dog, it also is an important tertiary metal at Hecla’s Greens Creek Mine near Juneau.
Thanks to zinc, along with lead and gold, the cost to produce an ounce of silver at this Southeast Alaska operation totaled just US$1.26 through the first half of 2017. With zinc and gold prices climbing, this cost could be even lower for the balance of the year.
Copper overheated?
Copper has been among the hottest metals in 2017, gaining nearly 23 percent on the year to a high of US$3.08/lb on Aug. 29.
While shrinking copper inventories at the London Metal Exchange warehouses has helped to push copper prices to a three-year high, analysts believe the price rally is overheated as investors grab stockpiles ahead of anticipated real supply shortages expected next year.
The average price forecast is for copper to retreat to US$2.60/lb by the end on 2017.
While copper is not currently produced in Alaska, the state hosts world-class deposits of the red metal that could be developed into mines over the next decade.
The best known of these is Pebble, the largest undeveloped copper deposit on Earth.
This deposit in Southwest Alaska hosts roughly 56.8 billion lb copper, 70.4 million oz gold, 3.4 billion lb molybdenum and 343.6 million oz silver in the measured and indicated resource category.
Northern Dynasty Minerals Ltd. hopes to bring on a global mining partner and initiate the permitting process for Pebble by the end of 2017.
