UPDATE 1-Venture Minerals plans to start tin production in 2013

Wed May 11, 2011 1:42am EDT

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* Australian tin prospector sees strong market fundamentals persisting

* In early talks to sell tin in China

* Expected to produce 2,500 tonnes per year (Adds details)

By James Regan

SYDNEY, May 11 (Reuters) - Australian miner Venture Minerals plans to start tin production from its Mount Lindsay project in Tasmania in 2013, in time to capture strong global demand for the metal, Managing Director Hamish Halliday said.

Tin prices have nearly doubled in the last year to trade at 30-year highs. Analysts point to strong demand from the growing lead-free solder market, coupled with constraints in world supply, particularly from Indonesia.

"There's a sweet spot in the tin market between now and around 2020, when little new supply in the world will come on," Halliday said on Wednesday.

"In terms of new tin projects, there aren't very many on the boards," he told Reuters in an interview.

Halliday said his company was in preliminary talks with Chinese smelters that could lead to supply offtake agreements prior to the mine's development and help defray up to $160 million in construction costs.

The mine has an expected life of eight years and will produce 2,500 tonnes to tin per year -- less than one percent of global output.

"Between now and the end of the year, we'll see some pretty big steps forward on the offtake side," he said.

Further supporting development of the mine is an abundance of tungsten -- along with iron ore and copper -- that would be produced as by-product to tin, said.

The mine is located near the western side of Tasmania, where tin mining has been on and off for decades depending on the vagaries of the market.

Most tin in Tasmania now is mined by China's Yunnan Tin , the world's largest producer of the metal, although a rising number of prospectors drawn by a robust outlook for the metal are laying claims in the region.

London Metal Exchange-traded tin climbed as high as $33,300 a tonne on April 11 but recoiled to a low of $28,199 on Friday. It last closed on the LME at $29,600 a tonne .

Halliday chalked up last week's massive correction in commodities markets to volatility in the sector, which he predicted will persist as investment in the sector ebbs and flows.

"The underlying fundamentals in these markets still exist," he said.

"In tin, the margins for us were still there at $30,000 a tonne after a big rout," Halliday said. "To be honest, we were doing back flips at $25,000 a tonne, so we're still very confident going forward."

By global standards for most metals, the tin industry is small, with annual production in 2010 estimated at around 350,000 tonnes.

China, Indonesia and Peru have the world's largest confirmed reserves and dominate world production.

Over 75 percent of refined tin is produced by the top ten producers which are located in south-east Asia, China and South America, according to industry data.

In recent years there has been a strong increase in the use of lead free solders, particularly for electronics.

Lead free solders usually contain around 96 percent tin.

Also helping drive tin prices have been heavy rain and flooding of tin mines in Indonesia recently, squeezing supply from the world's top exporter of the metal, which was already seeing lower output from falling onshore reserves.

BNP Paribas senior commodities strategist Stephen Briggs forecasts tin will rise to an average of $34,300 a tonne in the fourth quarter of 2011, a 14 percent increase over the first quarter's average. (Editing by Balazs Koranyi)

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