CANCUN, Mexico Struggling with the double whammy of high energy costs and low treatment charges, Japanese zinc smelters are moving to invest in mines in order to secure a steady supply of raw material, a senior executive at Dowa Metals & Mining Co. Ltd. said.
Toshiaki Suyama, general manager of the Tokyo-based companys resource development and raw materials department, said Japans smelting sector does not get the state and local subsidies that its counterpart in China receives.
"Dowa is itself investing in zinc and copper mines to secure a steady supply of concentrates. We also expect a profit from the mine (that the company invests in), but it is important for us to secure concentrates," he told AMM.
Dowa, which operates Japans largest zinc smelter, gets about 30 percent of its zinc concentrate requirements from its own mines; the company plans to boost this to 50 percent within about five years. It also gets about 10 percent of its copper concentrates from its own mines, with a target of 30 percent within the same time frame.
Toshiaki said the targets will be achieved largely through greenfield joint ventures, such as that recently concluded with Vancouver, British Columbia-based Constantine Metal Resources Ltd. for the Palmer zinc and copper mine in Alaska.
Announced at the start of February, the Palmer joint venture will give Dowa the rights to the concentrates produced at the mine. It is a long-term strategy: Palmer isnt expected to come onstream for another seven or eight years.
"We definitely need a partner for copper, but for zinc it depends on the size of the project," Toshiaki said.
Dowa also owns a 39-percent stake in the Tizapa Mine in central Mexico, which produces zinc, lead and copper concentrates from sulfide ore. The zinc concentrate from Tizapa is processed at Dowas smelter and refinery in Japans Akita prefecture. It similarly has a stake in two mainly copper concentrate mines, Huckleberry and Gibraltar, both in British Columbia.
Zinc treatment chargesthe fees paid to smelters by miners for turning their concentrates into finished metalhave favored miners in the past couple of years, settling last year at $191 per tonne.
This year, with a concentrates market widely deemed to be in surplus, the smelters have got the upper hand in negotiations, which reportedly were finalized at the International Zinc Association conference in Cancun this week.
Teck and Korea Zinc Co. Ltd. settled a benchmark zinc treatment charge at $210.50 per tonne, swinging terms in favor of smelters for the coming year, industry sources told AMM (amm.com, Feb. 27).
The market has moved in favor of the smelters due to a zinc concentrates surplus in China, where miners have increased output and built up stocks, resulting in lower imports. Meanwhile, Chinese smelting capacity is down, meaning less concentrates are being used and the stockpile is growing.
Dowa buys on long-term contracts; it waits for the benchmark, but negotiates its own contracts in the background. The company is looking to secure a higher treatment charge this year, Toshiaki told AMM before Teck and Korea Zinc settled.
"Obviously we are subject to market direction, but we need higher treatment chargesChinese mines do not need to import western material so the spot market has been very weak, and Japanese smelters are struggling in terms of higher costs," Toshiaki said.
The closure of the countrys nuclear power stations following the Fukushima disaster almost two years ago has seriously hit the countrys industrial producers, including its metal smelters.
"The government wants to restart the nuclear plants, but there are many steps to be overcome. It wants to reopen the plants soon, within a year, but it could be two years, so many smelting companies in Japan have to struggle in the interim with higher electricity costs," Toshiaki told AMM. "The weak yen helps, but a greater portion is being offset by the high electricity costs."
Dowa is now sourcing energy from imported coal, hydro-power and natural gas.