I was alerted to zinc by various speakers at this year's PDAC and by my friend Murph who tracks the juniors and small caps. Murph says: "I hate to pay more than the price of a postage stamp for a mining stock," so that pretty much sums up his approach to trading.

Over the years I've noted the ups and downs of the business cycle for the zinc industry. On behalf of a mining promoter and client, I personally arranged a visit for about 25 mining analysts to the Teck-Cominco zinc smelter in Trail B.C., shortly after it went into operation in the 1980's.

During the 1990's there was a widely known inventory oversupply problem, so prices took a while to get in sync with other base and precious metals after they started to move in 2001. By 2002, the mine output of zinc had fallen so low that supply to refiners was actually in deficit. But the price stayed low because refineries were drawing down inventories to meet the shortfall.

According to a report I read, refineries used 400,000 tonnes of stockpiled zinc in 2002 and 250,000 tonnes in 2003, with the result being that by 2004, refinery stockpiles were depleted, which forced refiners to start buying from the miners, obviously at higher prices, which the charts above reflect.

The big players here have been China and Russia, both of which went from being a net exporter to importer in 2001-2.

Analysts at Barclays, Societe Generale, and the International Lead and Zinc Study Group reported that by 2004, the zinc market was in stockpile deficit somewhere between 200,000 and 320,000 tonnes of zinc, with no prospects for improvement in 2005-6.

The thing with these base and precious metals miners is that major discoveries are rare, and it takes many years to bring them into production. Even ramping up production from existing mines and smelters is not a rapid process. So, once prices start to rise and break-out to the upside, they usually shoot like a rocket, far exceeding expectations.

In the first couple bull phases, the major miners attract the traders' interest. Then in the third and subsequent rallies, it is the juniors that can move up rapidly. Much of this is done by effective promoters " smoke and mirrors occasionally " so traders have to be careful.

If you do have an appetite for extreme risk in these juniors, there is always an indicator of a top. It can be (i) a stalled move where trading volumes become excessive, with no commensurate hike in share price, which means the promoter is selling, or (ii) a sudden and sharp pull-back of say -14-pct from the peak, where the promoters across the board get trapped in their own stories and are overwhelmed by the market sell-off.

I have seen both, and the thing is, you never know what's coming until it's going.

There are many zinc stocks available to traders. Two North American companies to watch are Teck-Cominco (TSX: TEK-SV.B) (USOTC: TCKBF) and Lundin Mining (TSX: LUN).

In Australia there are a few smaller ones: Kagara Zinc (ASX: KZL), Herald Resources (ASX: HER), CBH Ltd (ASX: CBH), and AIM Resources (ASX: AIM). You can follow these daily through Yahoo or ADVFN.

Without checking further, but because I know him to have a keen eye for these things, I'll pass along Murph's words about the zinc shares market (unedited):

---

"Breakwater T.BWR / a horrible company, good liquidity, and it keeps going like the Energizer Bunny. Controlled by Ned Goodman -- the industry joke was that if Ned wanted to punish you, off you went to Breakwater. Plenty of old assets getting refinanced here for near-term production.

Two new ones on my radar this week are V.ABI and V.TAM -- Cdn assets, near-term production.
No position yet, and hate to chase it.

The BWR .WT -- I have been loaded under .20 and been peeling them since high .30's...tuff to reload on pullbacks; it ain't happening. Last sale this week @ .54 . Down to 40% of my original position.

A couple of pure drill plays -- V.TBM and V.MKO.

Another one I forgot to mention -- HBM and the warrants...another refinanced producer on a rocket ship ride; they will be stealing zinc roofs off the shacks in the West Indies if the price keeps going."

---

I take no credit for the above remarks. The usual caveats apply.

Maybe Murph would care to keep us up to date? That is, when he's not fishing in the Exuma Islands of the Bahamas. :-)