Volcan to Boost Zinc Capacity as Prices Jump, CFO Says

Peru’s Volcan Compania Minera SA is increasing zinc production capacity in a bet prices will extend a rally as global demand outstrips supply of the metal used in batteries and rust-proofing.

“The fundamentals of the market tell us that the price of zinc should go up,” Volcan Chief Financial Officer Jorge Murillo said yesterday in a telephone interview from Lima. “Some analysts tell us that it will occur in 2015. We are prepared for that.”

The company, which produces 21 percent of Peru’s zinc, will increase treatment capacity at its Yauli, Chungar and Alpamarca units to about 300,000 metric tons in 2015, from about 282,000 metric tons currently, Murillo said.

Zinc for delivery in three months has gained 9.8 percent this year to $2,256 a metric ton on the London Metal Exchange. The International Lead and Zinc Study Group predicts zinc demand will exceed production by 403,000 tons in 2014, driven mainly by increasing usage in China for steel-sheet production. Mines in Australia and Ireland are projected to play out next year.

Volcan has already made the biggest investments needed to increase capacity, Murillo said, signaling the company’s free cash flow should increase in coming years as zinc prices rise.

Capital expenditures will fall to about $210 million in 2015 from about $340 million this year, Murillo said. Capital costs reached a record $534 million in 2013, according to data from the company, as Volcan developed the Alpamarca mine and increased silver production through its oxides project.

Zinc production from Alpamarca will reach about 10,000 metric tons a year in 2015, according to Murillo. The current rate is about 2,000 metric tons of zinc a quarter.

Murillo said the company also is trying to reduce administrative and operating costs to improve margins.

“When the price comes, we’ll have the total impact on our margins,” Murillo said.

(Corrects reference to zinc production in seventh paragraph and adds company figures for capital expenditures in sixth paragraph of story originally published yesterday.)
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