206 (27.12.18)



10. A.D.Z., Spain

How zinc in West Africa ends up in washing machines

Two hours from Ouagadougou, the capital of Burkina Faso, a truck carrying explosives disappears down a dirt road. Passing a container yard and a survey office it arrives at Perkoa, one of the world’s richest zinc mines, surrounded by yellow grassland and named after the nearest village. Rain is rare and malaria is rife, but deep underground workers blast $800,000 of metal every day. The ore is stuffed into containers and dropped onto trucks, which are weighed before leaving the mine gate. When Perkoa first opened, output was due to be driven into Ghana to a cacao port, Tema Harbour. Instead, it goes on a 6-day trip past a French military base to the port of Abidjan in Cote d’Ivoire. After 12 days at sea the containers are unloaded onto a dock on the north coast of Spain, joining stockpiles at ADZ, the world's largest zinc smelter, owned by commodities trader Glencore. Zinc smelting is a mercurial business: overheat the ore to remove impurities and zinc evaporates, so smelters only pay for 85 per cent of metal delivered. As smelting has improved, recoveries have risen, but the charge remains. In total, ADZ has hit Perkoa with $340m of charges over five years, taking at least 30 cents per lb, equal to a quarter of the mine's metal, whilst rolling-out half a million tonnes of zinc ingots each year. Some of the ingots go into a steel plant across the dock, but some also disappear, going into private, unregistered warehouses, creating an invisible stockpile and an artificial scarcity. Looking at visible global zinc stocks and “we're at record low levels” says Glencore's chief executive Ivan Glasenberg, pointing to supply of seven days. For industrial groups running just-in-time supply chains, that makes metal hard to get hold of, forcing them to pay a premium up to $135 per tonne, earning zinc smelters another 6 cents per lb. One such buyer is the Liege steel complex in Belgium, which heats the zinc until it is vaporized, spraying a steel sheet inside a vacuum chamber. Its biggest buyers, in turn, are white goods makers and the auto industry: washing machine drums and car panels that would otherwise rust are coated with five-thousandths of a millimetre of pure zinc. Perkoa's margins are equally fine: the mine is “just turning money”, one broker says. “They've still got a bit of margin, but it's slipping away.” Glencore is meanwhile investing in upgrades at ADZ, building new warehouses, generating free cash flow. “Even if you stress test the business,” Glasenberg says, “we still generate a vast amount of cash.”

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12 days

Zinc is loaded onto ships at Abidjan, a container port in West Africa. After 12 days at sea it is unloaded on the north coast of Spain and fed into warehouses at smelter ADZ


Owned by commodity trader Glencore, ADZ produces half a million tonnes of high-purity zinc each year, equal to 20 per cent of the EU’s zinc market


At current prices Glencore’s zinc division handles $3bn of metal each year, even before accounting for its own trading book, warehouse rents or premiums for delivery