Should investors think Zinc?

Teck's Red Dog mine in Alaska is the world's largest zinc mine.

On Wednesday, Breakwater Resources (TSX: BWR) agreed to a $663 million takeover from Nyrstar which marks the second takeover of a TSX listed zinc miner this year. Farallon Mining (TSX: FAN), was also taken out by Nyrstar. So we ask, should investors think zinc?

Zinc is used primarily for galvanizing steel to prevent it from rusting and to make copper-based alloys like brass. Galvanized steel is used for outdoor construction materials and transportation materials. Zinc is not a particularly abundant element, in fact, it makes up only 0.007% of the Earth’s crust. Zinc is often found in the ground as zinc sulfide.

Most of the supply of zinc is derived from mines in China, Australia and Peru. The world’s top three zinc mining companies are Xstrata, Teck Resources (TSX: TCK.B) and Glencore while the top three zinc smeltering companies are Nyrstar, Xstrata and Korea Zinc.

For investors who are inclined to think zinc we highlight three Canadian listed stocks with exposure in the sought after base metal.

Trevali Mining (TSX: TV) is an integrated junior with exposure to zinc, silver and lead. The company has operations in Canada and Peru. Adam Low, an analyst at Raymond James, thinks Trevali may be the next zinc company to make the transition from developer to producer. He has an “outperform” rating on the stock and a target of $2.40 a share and notes that the company’s shares are trading at just 0.37 times net asset value. Shares of Trevali Mining are up $0.17 today trading at $1.46. Trevali is part of the notable Canadian mining group the Cardero Group whose past success incudes the development and sale of Corriente Resources for $679 million to China’s Tongling Nonferrous Metals Group Holdings and China Railway Construction Corp.

On March 17, 2011, Rathdowney Resources (TSX-V: RTH) completed a reverse takeover of Coreland Capital, a shell company (CPC) listed on the TSX Venture Exchange. Concurrent with the takeover and in association with their partner Hunter Dickinson, another reputable independent Canadian mining group, Rathdowney raised just over $34 million privately at $1.00 per share to develop their projects. Rathdowney’s shares have been trading for just under a $1.00 recently. Yesterday, the company announced that it had commenced drilling on its flagship zinc-lead project in southern Poland. featured Rathdowney Resources in our recent Base Metals issue and we sat down with John Barry, the company’s President & CEO, for an exclusive interview – CLICK HERE – to read more.

Canada Zinc Metals (TSX-V: CZX) is a pure-play zinc junior with extensive property holdings in British Columbia.  In 2005, Canada Zinc Metals entered an earn-in option agreement for 65% of its lead project coined the Akie property. A few years later Canada Zinc acquired 100% of the Akie property and additional claims pursuant to a takeover and later completed its first NI 43-101 report. After the report was released one of China’s largest base metals companies, Tongling Nonferrous Metals Group, made a substantial investment in Canada Zinc Metals. Earlier this week, Canada Zinc Metals began additional exploration and extension drilling on its Akie property. The company’s shares are trading for just under $0.50 today. featured Canada Zinc Metals as a “Stock to Watch” in our recent Base Metals issue and connected with Peeyush Varshney, President & CEO, for a one-on-one discussion – CLICK HERE – for the interview.

Disclosure: at publication Canada Zinc Metals is a client of

Mike Luft

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