Zinc Supply May Gain 11% as New Mines Start Output, UBS Says

Supply of zinc, the worst-performer on the London Metal Exchange this
year, may gain 11 percent next year as 15 new projects boost output,
outpacing strong demand for the metal used to galvanize steel, UBS AG
said.

Production from the projects, including the $800 million San Cristobal
mine in Bolivia, will help create a surplus of 600,000 metric tons
next year, UBS analysts led by Glyn Lawcock said in a report dated
Nov. 30. A possible new tax on zinc exports in China may also boost
supply as producers seek to ship more of the metal before it's
introduced, UBS said.

The price of zinc has dropped 39 percent this year as stockpiles of
the metal gained. Zinc, copper and aluminum have all declined in
trading on the LME this half on concern U.S. economic growth will
slow, crimping demand for metals.

"Concerns about increasing zinc supply have dragged the metal down,
making it the weakest performer of the base metals in 2007," UBS said.
"The concerns have been exacerbated by credit crunch and a slowing
U.S. economy, which have pulled the whole base metals complex down."

Zinc for three month delivery in London rose $85, or 3.3 percent, to
close at $2,595 a metric ton on Nov. 30. The metal has dropped by
almost half from the all-time closing high of $4,515 a ton on Nov. 9,
2006.

The price will average $3,300 a ton in 2008 according to UBS. That
compares with the $2,931 mean forecast of 11 analysts compiled by
Bloomberg. Citigroup Inc. last month cut its 2008 forecast for the
metal by 28 percent.

Demand will rise 4.2 percent to 12.3 million tons next year and gain a
further 4.5 percent in 2009, UBS said. The 15 new projects scheduled
to start this year will boost supply 11 percent to 12.9 million tons,
it said. Production will rise 3.6 percent in 2009, the report said.

Kagara Zinc Ltd. is the bank's preferred zinc stock in Australia. UBS
said Kagara has low cost projects and strong growth potential.