ZINC: PAST PRESENT AND FUTURE

OCTOBER 2007Zinc is a bluish white metal, fourth most common metal inuse, trailing only iron, aluminium, and copper in annualproduction. The metal is widely used as a key input in Steelindustrygalvanize steel so as to prevent corrosion.Thisprocess not only increases the life of normal by 500% but italso brings down the maintenance cost. Approximately 35kilograms of Zinc is used per tonne of galvanised steelsheet.Worldwide, Nearly half of the world's annualconsumption of over nine million tonnes is used to protectabout 100 million tonnes of steel. Galvanised steel is used forapplications such as sheet roofing, car bodies and housingconstruction frames. The demand for Zinc is therefore highlyresponsive to movements in the residential construction andmotor vehicle manufacturing industries. The remaining zincconsumption is for making paint, chemicals, agriculturalapplications, household appliances and fittings, in themanufacture of electrical components, in the rubberindustry, TV screens, fluorescent lights and for dry cellbatteries. Thus, Zinc finds its uses in several core sectors likeAutomobile, Construction, Chemical, Rubber,Pharmaceutical and Alloy-manufacturing industries.

Following chart illustrates the use of metal across variousindustries

ZINC PRODUCTION:

There are zinc mines throughout the world, with the largestproducers being China, Australia and Peru, in that order. In2005, China produced almost one-fourth of the global zincoutput, reports the British Geological Survey. The largestproducing zinc mine in the world is the Red Dog Minelocated in Northwest Arctic Borough, Alaska and operatedby Teck-Cominco. This massive mine produces over 600,000metric tons of zinc concentrate per year.World Zinc production grew by 4% to 10.7 million tonnes in2006. An additional 640,000 tonnes of Zinc metal is forecastto be produced in 2007, enabling a 6% rise in total output to11.3 million tonnes.The increase in global production will come from a numberof mine expansions and new projects that, in turn, reflectgrowing explorations budget in recent years. Globalexploration budget have increased by approximately 150%since 2002.Increases to supply are expected to come on lineprogressively over the medium term. For example, SanCristobal in Bolivia (capacity of 167000 tonnes a year) andCerro Lindo in Peru (capacity of 110000 tonnes a year) areboth due to be commissioned in the third quarter of 2007.Herald Resources’ 220 000 tonnes a year Dairi mine inIndonesia is yet another mammoth project. EuroZinc is alsoplanning to restart the Aljustrel mine (80 000 tonne capacity)in Portugal.Over the medium term, four large confirmed projects inCanada, Mexico, the Russian federation are projected to addan extra 700000 tonnes to global capacity. In addition to this,a number of smaller projects, amounting to at least 400 000are also expected to be completed. This increase in capacity,combined with the new projects and expansions in 2007, is

projected to result in world Zinc production reaching 13.9million tonnes by 2012.Production in Canada is forecast to increase significantly as anumber of new mines start up, with expected capacity ofapproximately 330000 tonnes a year. Three projects are dueto start production in 2007, increasing Canadian output inshort term by around 120000 tonnes. However the largestproject, the Perseverance mine, owned by Xstrata, which isexpected to produce 115000 tonnes Zinc a year, is notforecast to start up until 2009.Over the medium to long term, countries in Africa mayemerge as major producers of Zinc. International investmentby Chinese and Australian companies in African continenthas already begun to pay off.

ZINC: MINE PRODUCTIONThousand tonnes (Zinc content)

Annual Totals Jan-Jun20032004 2005 2006 20062007

Europe 10131007 1057 1035 511 544Africa 258 352 414 376 187 201

America 37443568 3524 3449 16841861Asia 30573507 3832 4220 20722307

Oceania 14471298 1329 1321 669 690World Total 95209733101551040051245603

GRAPHICAL REPRESENTATION OFWORLWIDE ZINC MINE PRODUCTIONGEOGRAPHICHAL DISTRIBUTION OFZINC MINE PRODUCTION

ZINC: METAL PRODUCTIONThousand tonnes

Annual Totals Jan-Jun2003 2004 2005 2006 2006 2007

Europe 2744 2720 2559 2497 1243 1304Africa 197 260 274 255 143 141

America 1936 1993 1883 1845 886 933Asia 4450 4906 5057 5612 2697 3067

Oceania 553 474 457 463 214 244World Total 9879 10353 10229 10672 5182 5690

GRAPHICAL REPRESENTATION OFWORLDWIDE ZINC METAL PRODUCTION

GEOGRAPHICAL DISTRIBUTION OFMETAL PRODUCTION OF ZINC

TOP ZINC PRODUCING COUNTRIES*

*based on 2005 data

DEMAND AND CONSUMPTION OF ZINC :-

ZINC: METAL CONSUMPTIONThousand tonnes

Annual Totals Jan-Jun2003 2004 2005 2006 2006 2007

Europe 2780 2837 2686 2759 1354 1467Africa 173 194 204 199 100 103

America 1958 2126 1904 2036 989 961Asia 4664 5245 5572 5781 2842 2988

Oceania 267 263 253 273 123 140World Total 9841 10666 10617 11049 5408 5659

GRAPHICAL REPRESENTATION OFWORLWIDE ZINC CONSUMPTION

GEOGRAPHICAL DISTRIBUTION OF ZINCDEMAND

TOP ZINC CONSUMING COUNTRIES

WHAT LIES AHEAD:FUTURE OUTLOOK FORZINC

When it comes to future outlook for Zinc, one needs to takeinto account the historical price behaviour, and LMEwarehouse stock, as well as demand and supply dynamicsthat are going to influence the metal’s price in the future.

LONDON METAL EXCHANGE PRICE GRAPHFOR ZINC (SPOT PRICES) SEPTEMBER 2003 to2007

LONDON METAL EXCHANGE WAREHOUSEHISTORICAL DATA

FIVE YEAR WAREHOUSE STOCKS DATA

ONE YEAR WAREHOUSE STOCK DATA

From 610,000 tonnes in June 2005, inventory position is nowdown to 65375 tonnes. Zinc LME stock inventories, exceptfor a few brief lulls have been depleting on a daily basis overthe last few months. Zinc stocks are forecast to decline by 35per cent to 1.9 weeks of consumption by the end of 2007 as aforecast 5 per cent rise in metal output to 11.2 million tonnesagain falls short of consumption.

ZINC SUPPLY DEFICITS*:

Zinc Consumption – Zinc Metal Production = -377,000tonnesZinc Consumption – Zinc Mine Production = -649,000 tonnesZinc Metal Production – Zinc Mine Production = -272,000tonnes (concentrate shortage) * 2006 figures

Global consumption of Zinc grew by 4% to 11 million tonnesin 2006 and is forecast to grow a further 3% in 2007 to 11.4million tonnes. Over the medium term, growth inconsumption is projected to average 4% a year, bringingworld consumption of zinc to 13.9 million tonnes by 2012.The International Lead and Zinc Study Group (ILZSG)expects global zinc consumption to increase by 3.9% thisyear and estimates 2007 demand to rise by another 2.6%.China is by far the world's largest zinc consumer as itaccounts for 30% of total global consumption, three timesthat of the next closest country, the United States. The ILZSGexpects China's zinc demand to increase by 6.9% in 2007.

Zinc prices rose substantially in 2006, reaching a record US$4619 a tonne in late November. Prices are expected toremain high in 2007 as global demand, particularly fromAsia continues to expand. With consumption of Zincforecast to exceed production for a fourth year in a row,there is expected to be another drawdown in global Zincstocks in 2007. Output from new mines is expected to fill thegap between the production and consumption by 2008 andstabilise stocks. Over the medium term, supply growth is

expected to be sufficient to meet increased demand, andprices in real terms (2007 dollars) are forecast to weakenaround US $ 1670 a tonne. Zinc prices continued to rise in2006, bolstered by strong demand, supply constraints andthe continued drawdown in stocks. Prices increased 137%year on year to average US $ 3276 a tonne in 2007 as demandcontinues to exceed faster than supply.

Total Zinc stocks held by consumers, producers and inLondon Metal Exchange (LME) warehouses fell to 495000tonnes by the end of 2006, equal to 2.3 weeks ofconsumption and the lowest since 1991. Global stocks areexpected to fall further as consumption exceeds supply, butare projected to increase over the medium term to 2.6 weeksof consumption by 2012.

In real terms (2007 dollars) prices are expected to falltowards the end of the outlook period as increasedproduction provides more than enough supply to meetgrowing demand. Increased supply capacity (from projectssuch as San Cristobal in Bolivia), expected to begin comingon line after June 2007, is forecast to facilitate some easing ofprices toward the latter part of the year before furtherincreases in production contribute to prices easing further in2008 and 2009.

One uncertainty in the outlook for prices is the potential forZinc production to be substantially higher than anticipated.The majority of Zinc mine production in China is sourcedfrom relatively small mines, between 10,000 and 20,000tonne capacity, that take relative short time to startproduction. Production from these small mines is highlyresponsive to prices, and hence if prices remain high for

longer than, say 2 or 3 years, more and more of these minesmay begin production, resulting in significant additionalsupply.

A combination of increased smelter capacity and expandingmine output may result in much higher Zinc production inChina than current forecast. High treatment charges areencouraging the expansion and construction of new smeltersclose to mines in the west of China. Based on recentexperience, it appears that Chinese smelters with a capacityof 200000 can be constructed in around 2 years.

The combination of new mines and smelters is expected tocontribute to significant growth in Zinc metal production.Refined Zinc production in China is expected to rise by 10%in 2007 and again by same proportion in 2008.

Being the leading producer and consumer of the metal,China is an important link when it comes to Zinc. In China,Zinc is primarily used principally in country’s growing Steelindustry for galvanizing and as China’s Steel industryexpands further, its appetite for the metal will continue torise. The majority of the increase in demand for galvanizedSteel in China is expected to come from the construction andmanufacturing sectors. Construction growth driven by rural-urban migration is projected to flow through to growthacross a range of major infrastructure development. Massiveinfrastructure development for the upcoming 2008 Olympicsin China is yet another factor which will continue to push upthe demand for Zinc.

Strong growth in industries such as motor vehiclemanufacturing is also increasing the demand for Zinc. As

per capita income rises in China, local demand for cars too isrising rapidly. China is now the world’s second largestmarket, after the United States. Production and sales of carsgrew by 25% and vehicle exports more than doubled in 2006.

India is yet another key region, where growths ininfrastructure development in sectors like Power, Refineries,Ports, Railways, Roads and Bridges has given a boost to Zincdemand. The growing demand for motor vehicle in India isalso emerging as an important driver of the demand forZinc.

As far as United States is concerned, there is a growing shifttowards the use of galvanized steel in housing constructionfrom traditional timber frames. However a downturn inhousing sector in US in 2007 is expected to hit Zinc demand.However, the US housing construction is expected to recoverover the balance of the outlook period and contribute to theUS Zinc consumption.

Over the medium term, the consumption of Zinc in steel andmotor vehicle manufacturing industry in both US andEurope is projected to remain constant. The combination ofincreased competition from China’s steel industry and adownturn in motor vehicle manufacturing, particularly inthe United States is projected to result in flat or decliningconsumption of Zinc in both regions.

PRODUCTION, CONSUMPTION ANDWAREHOUSE STOCK (LME) FORECASTFOR ZINC

*Source: Abareconomics, Australia

In summary, demand for the metal will remain attractive,but if this demand is balanced by more and more ofsupplies, then in medium term, Zinc prices may fail to takeoff. Of particular importance are the new mines projects thatare going to start their production from late 2007-early 2008.Since most of them are supposed to be high capacity projectsthey may go a long way in easing the Zinc demand inmedium to long term. Thus, any developments on supplyfront needs to be watched closely.All this, and many more issues related to Zinc will come upfor discussion at International Zinc Conference going to beheld at Bangkok, Thailand (10th –12th September 2007).

ZINC : COUNTRYWISE PRODUCTION DATA

COUNTRY 1999 2000 2001 2002 2003e

Algeria 9,808 10,452 10,693r 8,576r 5,2013

Argentina 34,192 34,858 39,703 37,325 37,000Australia 1,163,000 1,420,000 1,519,000 1,154,000 1,480,0003

Bolivia 146,316 149,134 141,226 141,558r 144,985p

Bosnia and Herzegovinae 300 300 300 300 300Brazil 98,590 100,254 111,432 136,430r 200,000

Bulgariae 10,200r 9,400r 12,100r 13,000 13,000Burma 279 437 467 350r e 300Canada 963,321 1,002,242 1,012,048 894,399 1,000,000

Chile 32,263 31,403 32,762 36,161r 36,200China 1,480,000 1,780,000 1,700,000 1,550,000 1,650,000

Congo (Kinshasa) -- 215 1,014 1,000r 1,000Ecuadore 100 100 100 100 100Finland 20,000e 30,493 36,253 34,100 38,9003

Georgiae 400r 200 350r 400r 400Greece 19,619 16,900 31,700r 33,000r 20,000

Honduras 31,095 31,226 48,485 46,339 46,500Indiae 145,000 144,000 146,000 129,000r 162,000Irane 80,000 90,000 120,000 120,000 120,000

Ireland 226,000 262,877 225,135 252,700r 250,000Japan 64,263 63,601 44,519 42,851 44,5743

Kazakhstan 288,300 325,000 344,300 390,000 395,0003

Korea, Northe 100,000 100,000 100,000 100,000 100,000Korea, Republic of 9,832 11,474 5,129 99r --

Macedonia 7,900r 12,200r 6,300r 2,100r 2,500Mexico 362,811 392,791 428,828 446,104r 460,000

Morocco 111,703 103,064 89,339 91,000r,e 70,000Namibia4 35,140 39,126 37,622r 42,685r 60,5003

Peru 899,524 910,303 1,056,629 1,221,830r 1,250,000Poland 154,800 156,900 152,700 152,200r 150,000

Romania 26,536 27,455 29,786r 25,000 25,000Russia 132,000 136,000 124,000e 130,000 125,000

Saudi Arabia 3,161 3,000e 3,300 3,000e 3,000Serbia and Montenegroe 1,000 2,500 1,200 1,000r 1,500

South Africa 69,733 62,703 61,221 64,173r 41,2393

Spain 110,000 201,000 164,900 69,900r 70,000Sweden 174,400 176,788 156,334 148,600r 186,9003

Thailand 24,000 27,000 15,300r 33,600r 32,9003

Tunisia 49,066 41,247 37,900e 35,692r 36,000Turkey5 545 39 37 35e 35

United States 852,000 852,000 842,000 780,000 738,0003

Vietname 18,000 16,000 16,000 16,000 16,000Total 7,960,000r 8,770,000r 8,910,000r 8,380,000r 9,010,000

ZINC : WORLD SMELTER COUNTRYWISE PRODUCTIONCountry3 2000 2001 2002 2003 2004e

Algeria, primary and secondarye 34,000 34,000 261,364 32,200 25,000Argentina:Primary 36,359 39,727 38,699 36,500 r 31,500

Secondary 2,910 3,180 3,098 2,500 r 2,500Total 39,269 42,907 41,797 39,000 r 34,000Australia:

Primary5 490,000 554,000 567,000 553,000 473,000 4

Secondarye 4,500 4,500 4,500 4,500 4,500 4

Total 494,500 558,500 571,500 557,500 r 477,500 4

Belgium, primary and secondary 251,700 259,300 260,000 e 244,000 e 263,000Brazil:Primary 191,777 193,061 249,434 251,000 r 259,000Secondarye 7,000 7,000 7,000 7,000 7,000Total 198,777 200,061 256,434 258,000 r 266,000Bulgaria, primary and secondary 84,200 88,600 83,000 86,800 r 87,000Canada, primary 779,892 661,172 793,475 761,199 r 805,077 4

China, primary and secondarye 1,980,000 2,040,000 2,100,000 2,320,000 r 2,500,000Czech Republic, secondarye 150 r 250 r 200 r 250 r 250Finland, primary 222,881 247,179 235,300 265,900 235,000 4

France, primary and secondarye 3,500,004 347,000 350,000 253,000 260,000Germany, primary and secondary 4 358,300 378,560 r 388,112 r 364,000India:Primary 176,000 207,000 e 231,400 253,900 238,400 4

Secondarye 25,000 25,000 24,000 24,000 24,000Total 201,000 232,000 255,400 277,900 262,400 4

Irane 490,004 73,000 82,000 r 84,000 r 105,000Italy, primary and secondary 4 177,800 176,000 123,000 e 130,000Japan:Primary 541,704 541,277 547,183 532,704 534,830 4

Secondary 157,047 142,777 126,723 153,411 132,417 4

Total 698,751 684,054 673,906 686,115 667,247 4

Kazakhstan, primary andsecondary 262,200 277,100 286,300 279,000 r 316,500 4

Korea, North, primary andsecondarye 60,000 r 60,000 r 60,000 r 60,000 r 60,000Korea, Republic of, primary 473,897 508,000 600,027 647,500 r 671,000Macedonia, primary andsecondarye 69,800 52,000 r 56,000 r 28,000 r --Mexico, primary 235,073 303,810 302,122 320,364 r 320,000Namibia6 -- -- 35 47,436 119,200 4

Netherlands, primary7 216,800 204,800 203,000 e 223,000 225,000

Norway, primary 125,800 145,000 r 145,000 r 142,000 r 140,000Peru, primary 199,813 204,646 r 172,688 202,076 r 195,692Poland, primary and secondary 173,000 e 174,700 158,900 153,300 r 153,000Portugale

Primary -- r -- r -- r -- r --Secondary 3,600 3,600 3,600 3,500 1,500Total 3,600 3,600 3,600 3,500 1,500Romania, primary and secondary 51,900 47,200 51,600 r 52,000 r 50,000Russia, primary and secondarye 230,000 237,000 244,000 253,000 r 240,000Serbia and Montenegro, primaryand secondary 8,291 13,467 1,478 62 r 100Slovakia, secondarye 1,000 1,000 1,000 1,000 1,000South Africa, primary 103,000 109,000 105,000 e 115,000 104,000Spain, primary and secondary 386,300 488,000 519,000 525,000Thailand, primary 77,525 74,129 105,000 r 107,000 r 103,000United Kingdom, primary andsecondarye 760,004 90,000 98,000 14 --

SOURCES:1. ILZSG.COM (INTERNATIONAL LEAD AND ZINC STUDY GROUP)2. WIKIPEDIA.COM3. BLOOMBERG.COM4. REUTERS.COM5. MARKETWATCH.COM6. DOLLARDAZE.COM7. ABARECONOMICS.COM8. KITCOMETALS.COM9. BROOKHUNT.COM10. REUTERS DATABASE11. BRITISH GEOLOGICAL SURVEY

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