(Reworks third paragraph to explain that South32 settled with Canadian miner Teck Resources at the same number for its annual lead concentrates supply contract. Teck has not settled with its customers at a TC of $170 per tonne, needing lead concentrate supply from other miners)
London 20/04/2016 - South32 has settled annual supply contracts for high-silver lead concentrate from its Cannington mine in Australia with Korean smelter Korea Zinc at lower rates, sources told FastMarkets on Wednesday.
The miner cut its treatment charges (TCs) by 11.7 percent to $170 per tonne from $192.5 in 2015, with silver refining charge (RC) unchanged at $1.5 per ounce.
Canadian miner Teck Resources has also agreed the same number with South32 for supply of lead concentrate this year.
"It's a fair settlement as the market is getting tighter, which was expected," a trader in Europe said. "The spot market will get tighter still in the second half of this year."
South32 had been looking for a drop of $30-40 per tonne for the TCs and pushed hard for a return to $1 per ounce for the silver RC amid supply tightness caused by the closure of the Century, Lisheen and Magellan mines and production cuts at Doe Run's Missouri.
Increased smelting demand mainly from South Korea and Germany pushed the terms lower. Lead capacity at Korea Zinc will jump 40 percent to 430,000 tonnes in 2016 from 300,000 tonnes.
Situated in North Queensland, South32's Cannington mine is the world's largest silver and lead mine, with expected payable lead production of 175,000 tonnes during the 2016 financial year, it said in its financial reports.
Cannington is typically used as a reference for high-silver lead TC/RCs; Sumitomo's San Cristobal in Bolivia is another.
Chinese smelters traditionally prefer low-silver lead concentrates due to the negative arbitrage between the LBMA and Shanghai silver prices as well as the import tax of 17 percent although the Chinese government made silver tolling agreements free of import duty in November last year.
"I believe the drop [in TCs] was expected because the market is tighter on the concentrates side and spot terms keep reflecting this trend. But credit concerns and contract performance risks still make the business challenging in China," a mining source said.
(Edited by Mark Shaw)