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Market Outlook

Base and precious metal producers and investors, have long been accustomed to the ups and downs of global commodity demand.

Normal business cycles, however, are being turned upside down by China’s emergence as a global economic force, with a growth profile that appears to have legs. China now consumes 30% of the world’s coal, 40% of steel production, is second only to the U.S., in oil consumption, and is single-handedly responsible for record prices in copper.

Phil Flynn, senior market analyst at Alaron Trading, a futures and options brokerage in Chicago, said recently to the New York Times: "We're in an era of tremendous opportunity for commodities, and it's going to be one of the biggest sectors not for one year, but for five, 10 years."

Pioneer Investments analyst Michael Bradshaw concurred, telling the Times copper was in the shortest supply of all commodities, because there were no easy substitutes for it in industrial processes.

Teck Cominco Ltd., one of the largest worldwide producers of zinc, is equally optimistic about zinc, suggesting that the surplus of zinc created by additions to mine supplies in the 90’s, is now over. Roughly 55% of zinc end use in the Western World is used in the production of galvanized steel. Galvanized Steel production is the fastest growing sector of the Steel industry. Currently, China consumes 4 times more galvanized sheet than they produce. In 1990 China accounted for 8% of world zinc consumption - in 2004 they accounted for 23%. With metal stocks in decline, current demand for zinc is greater than supply.

Key factors influencing the dynamics of supply and demand for zinc make SLAM, which has discovered zinc at Nash Creek, an attractive long-term investment as the resource tonnage on the property is expanded:
 

• zinc prices are coming off multi-year lows
• world-wide demand for zinc exceeds supply
• a decline in mining activity and a dearth of new discoveries indicates higher zinc prices are sustainable for the foreseeable future

Following several decades of ample zinc supply, a major supply gap has developed in the zinc markets, profoundly impacting prices.

In short, increasing supply shortages, declining stockpiles and increases in demand bode well for zinc producers as the price of zinc is expected to remain strong over the long-term.

While the future looks bright for base metals, gold too appears to be on a long term climb. Gold is now trading above US$900 and shows no sign of weakness.

A Bloomberg News Survey in the fall of 2004 found that most traders agreed that gold benefits from speculation that the US dollar's decline helps accelerate inflation.

John Hathaway, 63, manager of the New York-based Tocqueville fund, told Bloomberg. "Owning physical metal is a more conservative way than owning higher-risk gold shares to participate in the favorable macroeconomic environment for gold, including a falling US dollar."

Richard Russell said recently in his Dow Theory Letters "Gold is pure wealth -- it was wealth in 2000 BC, it was wealth in the 1400s and the 1600s, and it's wealth today. The people at the Fed may tell you that gold is just an ancient 'relic,' but gold will be accepted as wealth when these yo-yos at the central banks are gone and forgotten…"

According to the U.S.-based Gold Institute, gold is essential not just for its intrinsic value, but as an element in both existing and emerging technologies. The computer and telecommunications industry uses billions of gold-coated electrical connectors; advanced laser technology employs interior gold coatings to concentrate its powerful light energy; and modern medicine relies on gold in a wide variety of procedures ranging from the monitoring of heart functions to the chemistry related to diagnosis and treatment of cancer, viral and bacterial diseases and allergies.