Zinc is one of those metals that keeps the world turning. It is used to galvanise other metals, such as iron and steel, and as an alloying metal to make bronze and brass. Without zinc, many of our other, core metals take a hit, making it a silent hero – and one that’s in high demand. For multiple reasons, the average price of zinc was recently the highest it has been in 10 years, and it still extremely high, which makes it a perfect time to speak with Sun Metals Corporation: not only has this Australia-based company undertaken an expansion that will place it amongst the largest-scale zinc refineries in the world, but it is taking on an even more daring venture by attempting to turn its production 100% green by 2040. We spoke with Michael Choi, company CFO, to learn more.
Sun Metals describes itself as one of the most technologically advanced zinc refineries in the world, producing Special High Grade Zinc metal, Zinc Alloy metal and by-products of Sulphuric Acid. The subsidiary of South Korean company Korea Zinc Co. Ltd, Sun Metals operates in Townsville, Queensland in Australia, from which sells its many zinc and other by-products both locally and internationally. This international reach goes both ways: the company also imports zinc concentrates from many countries, including Europe, USA, South America and, unsurprisingly, Australia.
This level of export and, even more crucially, import caused Sun Metals to encounter challenges during the pandemic period, as many mines had the risk of closing their operations temporarily, and shipments from overseas also became much harder and slower to receive. “Korea Zinc and Sun Metals as a group, we get zinc concentrates from all over the world and the potential risk of closure of major mines was rising during Covid. We were able to manage it well.” Sun Metals shares supplies with its parent-company, Korea Zinc, so with cooperation between the two, the impact was carefully mitigated. However, the cost of international freight shipping rose greatly to reflect global challenges and sourcing skilled labour was challenging due to border closures. This threat and uncertainty could have had a terrible impact on Sun Metals, as the company had recently undertaken a daring expansion project: however, the knock-on effect of the issues in zinc production led to an extremely profitable result for an end-on-the-process company like a refinery: the price of zinc was doing what gold and so many other natural resources do during a global crisis – it was shooting up.
“The zinc price has reached its peak,” Michael Choi told us. “It’s a high price that’s sitting around $3300 per ton. Zinc, copper, all the basic commodities are doing well at the moment.” We asked Michael for specifics on why the metal is doing so well, and as well as the ‘safe haven’ effect seen in natural resources during uncertain times, there were other factors also at play.
“30% of the cost of zinc smelting comes from electricity. Due to the electricity shortage in Europe, the cost of electricity has gone up, which also meant that few of the big smelters in Europe reduced their production by 50% or has decided to close until the electricity price is stabilised. Also, major Chinese smelters received orders from provincial governments to lower their power consumption due to energy shortage.” Due to a combination of Covid slowing mining operation and raising shipping costs, and a hike in electricity costs further slowing production and raising expenses, zinc ended up in short supply – which meant its value soared. For Sun Metals, the timing couldn’t be better:
“The zinc market is incredibly strong and we are benefitting from it. In our refinery, we have this big expansion project going on: we were originally producing 230,000 tons of zinc metal, and now we are targeting to go for 300,000 tons, so that will rank us at around 6th or 7th in the world.” The expansion is set to be completed by the end of 2021, which means it’s almost there. By the end, it is estimated that it will have cost an investment of A$455m (that’s over US$328m). The refinery’s projected increase in production will largely be due to a new technology that is being implemented in this expansion: one that was developed and pioneered by Korea Zinc in 2017.
However, this expansion was still challenged by the effects of COVID 19 in other ways, in the physical process of the construction. “As international travel ceased and borders were closed, there was a significant impact on our resource and equipment plans for the expansion project. We needed labour sourced from other states in Australia, but due to states border closure, we had some trouble. Additionally, as the second company in the world to introduce this new technology, we had planned to rely on the knowledge and expertise of our parent company. The inability to send our operators to South Korea or bring their employees to our refinery in Townsville to share knowledge meant we had to develop a completely different training program.”
“We believe we rose to the challenge, and at the end of 2020, we were honoured that Sun Metals was recognised by the Australian Trade and Investment Commission (Austrade) as a strategic investor committed to the Australian economy despite COVID-19 disruptions and uncertainty.” This recognition proves the company must have been doing something right, and successfully undertaking an ambitious expansion during a time when so many companies slowed and scaled down certainly deserves some applause! And yet, all of this is not even the most ambitious part of Sun Metals’ projects and future plans: for that, we must look to their plans for ‘green zinc’.
“As the first refinery in the world to join RE100, an initiative bringing together the world’s most influential businesses committed to 100% renewable electricity by 2040, we are also aiming to become the first refinery in the world to produce green zinc. By use of the term ‘green zinc’, we mean made entirely from renewable electricity.”
By this, the company is referring to the sources of its electricity: some heavy industrial processes will still use non-renewable electricity, but the aim is to move 100% of its electrical power over to green sources, and to power as much in this way as is possible. “We have made a commitment to power our entire operations with 100% renewable electricity by 2040, with an interim target of 80% by 2030. To facilitate this, in early 2021, our sister company Ark Energy Corporation was established by Korea Zinc to decarbonise the energy supply of the group, starting with Sun Metals.”
As Michael explained, electricity accounts for 30% of the cost for refinery operation, and in the beginning, Sun Metal’s aim was motivated from a financial standpoint, but this then evolved in a vision for a sustainable future. “Along with being the first refinery in the world to join RE100, SMC’s track record in sustainability is strong – this includes building the largest (125MWac) integrated industrial use solar plant in Australia and, in conjunction with sister company Ark Energy Corporation, SMC is investing in green hydrogen.” This sister company was founded in order to decarbonize the Korea Zinc group of companies and to invest and develop in renewable projects.”
The first investment was a solar farm, which the company built in 2018, and from there, their attention then turned to hydrogen. Feasibility studies began the same year, and with financial support from the Australian government to make the development viable, the company decided to build a hydrogen hub in North Queensland, starting from a pilot plant in Townsville named SunHQ. Supplying Korea Zinc and Sun Metals as its first priority, the hub will also, in time, expand to be able to export supply elsewhere – or, this is Sun Metals’ plan. First, this will be distributed domestically in North Queensland, and after this, further exports will head to North-East Asia.
On top of these projects, Sun Metals is also investing in a wind farm. Between all of these, 86% of the company’s energy has already been covered by green sources, so Michael is confident that they can fill the 14% gap before 2040 – probably, he predicts, through investment in new battery technology.
“It started from trying to manage the cost of electricity, and then we started thinking about sustainability. Everyone talks about ESG these days (Environmental, Social, and Governance), and people realise how important that is. The change or the boom hasn’t really happened in smelting companies yet: we are the first smelter to join RE 100.” Whilst the claim of ‘green zinc’ doesn’t have heavy industries clamoring to favour Sun Metals’ zinc yet, Michael predicts that attitudes will shift, as they are already doing so in other industries. The ‘dirtier’ industries may be slower to move in this direction, but as seen by companies some major companies selling off their coal assets, or the mines we saw last month working with Adria Power, the move has already begun, and Sun Metals will be there to meet the industry when it gets there.