Investments in Natural Resources

When it comes to natural resources such as metals, oil, gas and so forth, what do they all have in common? They’re non-renewable. Certainly more deposits can be discovered, but in general for every piece of gold or silver we mine up, another piece like it is not going to be generated for thousands if not millions of years. This can be seen especially with zinc, where shortages are reportedly inevitable.

Then why hasn’t the price gone up to meet this shortage expectation? And if the prices haven’t gone up, why are companies like Xstra and Glencore International, or Canadian Zinc and Paragon Minerals putting in for mergers with zinc as the primary motivation?

As for why zinc hasn’t gone up in price just yet, we can only speculate. Perhaps some people don’t believe the shortage is inevitable, or there’s so much zinc on the market right now it’s flooded it enough to keep its prices stable rather than rise.

As for why companies are merging to gain access to as much zinc as possible, that should be self-explanatory. Do you think people like Charles Reed Cagle, CEO of HEI Resources made their fortune by buying high priced shares? No, a smart company buys shares while they’re low when they have a good chance of increasing in price.

In the case of zinc this price hike is inevitable. Eventually it will become scarce enough that companies will make a huge profit selling any amount of zinc that they invest in right now. In the case of Xstra and Glencore International this is going to be a huge boom. Between them, they would control 9.1% of the global refined zinc market, a large enough amount that the merger has been delayed by the European steel association.

It’s hard to say when this grabbing at zinc will stop, simply because it already should have. But until the price of zinc begins to reflect its increasing scarcity companies will be investing as much money into it as they can.

It’s a simple case of supply and demand when it comes to zinc, but economics complicates things. The less supply and more demand of something is the more its worth, but the prices of zinc have not yet caught up to this expectation. In the end, when you have a chance to buy into something cheap that is guaranteed to become valuable, you should.

Share Button