UPDATE 1-Teck Cominco confirms zinc TC deal with Korea Zinc
(Changes dateline, adds Korea Zinc comment, details)
NEW YORK/SEOUL, April 4 (Reuters) - Teck Cominco Ltd. (TCKb.TO), the world's second-largest zinc miner, agreed to contract terms for treatment charges, or TCs, with Korea Zinc Co. (010130.KS), but would not divulge details, the two firms said.
"We confirmed that we had agreed on terms, but we don't comment on the terms of our contracts," said Greg Waller, vice president of investor relations at Teck Cominco.
TCs are the fees miners pay smelters to refine their zinc concentrates into metal.
Market talk has put the charge at $300 per tonne based on a $2,000 a tonne London Metal Exchange zinc MZN3 price.
The deal with Korea Zinc, now the world's third-largest zinc refiner, was said to include price participation, involving an escalator of 10 cents a lb and a de-escalator of 6 or 7 cents a lb. Those terms have not been confirmed.
Last year's benchmark TC was set at $300 a tonne based on an LME zinc price of $3,500 a tonne.
LME zinc for delivery in three months finished Thursday at $2,330 per tonne, down sharply from the record high reached shortly before last year's talks at $4,600 per tonne.
A source at Korea Zinc said on Friday it had settled most major deals for the year and increased global supply of zinc ore helped it win positive terms.
Smelters are battling with miners to avoid sharp declines in the fees they receive for treating mined concentrates as mines struggle to keep up with rising processing capacity and compete to sell raw materials.
Meritz Securities estimates the new terms will increase Korea Zinc's earnings by 32 billion won ($32.8 million), assuming zinc prices averaging around $2,400.
While in the past a deal between Korea Zinc and Vancouver-based Teck Cominco served as the market benchmark because of their market dominance, this year's talks were stymied by deep uncertainties about the supply outlook.
Though Xstrata (XTA.L) is now the world's top zinc miner, it also has greater refining capacity than Korea Zinc and refines much of its own concentrates. It does not therefore have the same need to set long-term contracts.
Typically, miners and smelters settle on TC deals at the annual American Zinc Association gathering in February.
This year, however, talks were difficult, with cost surges for both miners and smelters, increased volatility in the zinc price, and a large shortage of capacity among non-Chinese smelters, causing a wide gap on views about where to set TCs. Continued...
