China's MMG to plough AUD$1.5bn into Queensland zinc mine

Despite a disappointing year in terms of economic growth China's overseas buying spree in the resources sector continues unabated, with state-controlled MMG (HKSX:1208) pushing ahead with the AUD$1.48 billion development of the Dugald River zinc-lead-silver deposit in the northwest of Queensland.

The Australian reports that MMG, which is headquartered in Melbourne and listed in Hong Kong, is confident that the investment in Dugald River will pay off due to a shortfall in zinc supply over the medium to long term.

"This will be a significant investment for MMG and one which demonstrates our confidence in the long-term outlook for zinc," said MMG CEO Andrew Michelmore.

Analysts expect zinc prices to rise in future due to an imminent supply shortage. The forecast annual growth rate for the metal, which is employed in the manufacture of steel, is in excess of 4%, yet new developments are scarce and many large-scale existing mines are on the brink of exhaustion.

Planned mine closures over the next five years will deprive the 11-12mtpa zinc market of around 1.5 million tonnes in output per annum, with MMG's own Century zinc mine in Queensland's north-west expected to close in 2016. Century's current output is approximately 500,000 tonnes per annum.

The development of the Dugald River mine arrives just following a wave of project delays and cancellations in the Australian resources sector, as miners strive to cut costs due to ailing demand and declining commodities prices.

Hong Kong-listed MMG is 72% controlled by China Minmetals Corporation, one of China's largest state-owned enterprises. The company first achieved prominence in Australia with its acquisition of all of OZ Minerals assets, with the exception of the Prominent Hill copper-gold mine, when the later faltered during the GFC.