* Major mines going offline in 2012-2015
* Zinc shortfall expected starting in 2013
* Very few producing juniors left, mid-tiers may be next
By Julie Gordon and Aftab Ahmed
TORONTO/BANGALORE, June 28 Zinc producers are betting on higher prices in coming years, bringing a possible round of consolidation as miners jockey to reap the benefits.
Even though experts predict a surplus of zinc this year, they expect prices to rise within the next two years, and refiners, mid-sized miners and major producers are already looking for juniors to snap up.
"I think zinc is a 2013 story," Stifel Nicolaus analyst George Topping said of the price of zinc, which is used to galvanize metals and prevent rust. "But if you're an industry player you need to be in earlier. Beat the rush."
Names like Trevali Mining (TV.TO), Tirex Resources (TXX.V) and even mid-tier producer Lundin Mining (LUN.TO) crop up as potential targets, given that some company valuations have fallen as zinc prices sag.
The metal is down more than 6 percent at $2,273 a tonne so far this year and well off the 2006 high over $4,500.
If there is a rush coming, Belgian producer Nyrstar (NYR.BR) is ahead of it. It bid C$663 million ($674 million), including a dividend, for Canadian miner Breakwater Resources BWR.TO last month and bought Farallon Mining late last year.
The Breakwater bid will push Nyrstar closer to its goal of mining at least 50 percent of the concentrate that feeds its smelters around the world and it has focused attention squarely on the long-stagnant zinc industry.
"Nyrstar has been buying smaller zinc deposits over the last two years, but the move on Breakwater brought their strategy to the market's attention," said Topping. "If they're buying you have to take note of that. They're the experts."
At first sight it's an odd time to buy up juniors, given that zinc stocks in LME warehouses are at their highest level since 1995 and the International Lead and Zinc Study Group expects global refined production to exceed demand for the fifth year running in 2011.
For a graphic on top zinc mining countries
For a factbox on zinc: [ID:N1E75R0UL]
But all that is set to change by 2013, when the closure of big mines -- Xstrata's XTA.L Brunswick mine in Canada and Minmetals'(1208.HK) Century zinc mine in Australia -- will usher in the first zinc market deficit in seven years.
Bulls say those closures, combined with soaring Asian demand, could create a 3 million tonne shortfall in the metal, long seen as the less-alluring sister metal to copper.
"While we would certainly stop short of getting bullish just yet there has been a noticeable improvement in the perception of the zinc market outlook recently," Standard Bank analyst Leon Westgate said in a note to clients.
SMALL FRIES, BIG GUYS
The problem for big name producers like Minmetals, Glencore (GLEN.L) and Vedanta Resources (VED.L) is that with Breakwater off the market, there aren't many zinc options left.
"If you look around the world, there are only a very limited amount of pure-zinc players with producing assets," said BMO Capital Markets analyst Johannes Faul.
Trevali, which plans to have two mines in production by early 2012 and is targeting 80,000 tonnes a year by 2015, is seen as one of the few remaining targets.
With a market capitalization of just C$130 million, it could be a deal for a forward-looking producer with cash.
Miners should also watch Tirex Resources, which owns the Mirdita project in Albania, and Canadian Zinc, which owns the Prairie Creek project in Canada. Both are in development, highlighting that investors need to be in for the long-haul.
"We're quite positive on zinc in the mid-term, but it's still a bit early to get excited about zinc equities over the next 6-12 months," said Faul.
For Minmetals, a mid-tier diversified producer like Lundin, HudBay Minerals (HBM.TO) or Boliden AB (BOL.ST) might be a better fit as it looks to replace the 500,000 tonnes a year that it will lose when Century closes.
Lundin, flying solo after a deal to merge with Inmet Mining IMN.TO fell through, plans to produce some 120,000 tonnes of zinc this year. But analysts said the diversified miner may be overvalued, as its stock has nearly doubled in 12 months.
HudBay, on the other hand, is up just 8 percent in the last 12 months, and down some 26 percent so far this year.
It will produce around 80,000 tonnes of zinc in 2011 and plans to ramp that up to over 125,000 tonnes by 2016.
But even as zinc prices inch toward $2,300 a tonne, the galvanizing metal is still well behind copper, which at over $9,000 a tonne may be a better bet for deal seekers.
"In terms of the M&A market, we will probably see more activity in copper just because there are far more copper junior companies to be acquired," said Raymond James analyst Adam Low. (Additional reporting by Bhaswati Mukhopadhyay in Bangalore and Melanie Burton in London)