MELBOURNE, March 30 Korea Zinc Inc,
the world's third-largest zinc smelter, has agreed to take a 15
percent drop in annual processing fees for 2017 as smelters
grapple with a dearth of mine supply, Metal Bulletin reported.
The South Korean firm agreed annual treatment charges with
Canada's Teck Resources of $172 per tonne, Metal
Bulletin reported, citing unidentified people with knowledge of
The first major deal of the year, it is likely to set the
global benchmark and compares to $188 a tonne in 2016 agreed
between Teck and Glencore, the deal that set last
Korea Zinc declined to comment. Teck Resources did not
immediately respond to a request for comment.
Mining companies pay treatment charges (TCs) to smelters, to
have their concentrates turned into refined metal. The charges
fall when supplies dwindle as smelters compete to find supply.
Zinc mine supply has been shrinking as several blockbuster
mines, such as Australia's Century and Ireland's Lisheen, have
been tapped out with no new major lodes in the pipeline.
Korea Zinc said last month it planned to cut its refined
zinc production by 7.7 percent to just under 600,0000 tonnes
this year due to tightening supply and low treatment charges.
London Metal Exchange zinc has risen 11 percent so
far this year to $2,861 a tonne, having soared 60 pct last year,
after prices touched seven year lows last January.
Zinc treatment charges have a pricing component which are
linked to LME prices. Smelters win a percentage increase in
treatment charges for every dollar the LME price increases above
a set basis price, but if the price falls, TCs also drop,
alleviating fees miners must pay in a low price environment.
In 2017 terms, Korea Zinc will pay for 85 percent of the
contained zinc in concentrate, according to Metal Bulletin,
meaning it still has exposure to rising prices considering
recovery rates are generally 94-95 percent.
(Reporting by Melanie Burton Additional reporting by Jane Chung
in SEOUL and Susan Taylor in TORONTO; Editing by Kenneth