* Production drying up at big zinc mines
* That is curbing oversupply, boosting prices
* Zinc market up nearly 50 pct this year
* Miners rushing to invest in new zinc output
* But some analysts caution that demand could ease in second-half
By James Regan
SYDNEY, Aug 24 (Reuters) - Resource companies are racing to dig zinc mines, betting that markets for the metal used to rust-proof steel and protect noses from sunburn have finally turned after a decade in the doldrums.
A supply glut is evaporating as big zinc mines run dry, commodity analysts say, helping drive up prices by nearly half this year and triggering investments in new and long-dormant projects from Greenland to Africa.
"There is a sense of urgency that the zinc price will continue to appreciate in coming years and we want to start construction as soon as possible to take advantage of that," said Simon Smith, finance manager of Heron Resources, which is spending A$190 million to return a landfill site in Australia to its former life as a zinc mine.
The global supply pool has been contracting as reserves are exhausted at huge mines in Australia, Canada and Ireland, while other major producing nations such as Peru have seen output drop as richer ores are mined out.
Macquarie Bank calculates that global supply has plunged by as much as 14.5 percent in the first half of 2016 alone.
"There is no doubt the supply side of this market is declining and supporting the case for new mines," said commodities analyst Daniel Morgan of UBS, adding that companies that buy zinc to refine had become "panicky" about supply.
Not everybody is sure zinc prices will keep going up.
Analysts at Capital Economics caution that zinc's upcycle could be clipped, if, as it predicts, Chinese steel prices weaken again in the second half of the year, reducing demand in the biggest consumer of the base metal.
And investment bank Liberum warns that high prices may tempt China's miners to dig more metal, leaving little room for further upward price moves.
Chinese zinc output has been running around 1.3 million tonnes below its 2014 peak, with local media reports that mines have been shuttered as part of a government crackdown on pollution.
Miners remain optimistic on the long-term outlook for prices, however.
"We were looking very hard for zinc, which is offering some of the greatest opportunities for growth, and wanted to move quickly," said Craig Mackay, managing director at Golden Rim Resources.
Golden Rim last month paid $2.29 million for the Paguanta zinc project, a 40-mile expanse of exploration ground near Chile's border with Bolivia.
Andrew Michelmore, chief executive of China's MMG Ltd , said the company was digging a new mine in Australia costing $1.5 billion, with up to $550 million in loans from China Development Bank Corp and Bank of China.
"The supply crunch has finally come," he said, adding that few opportunities exist to acquire operating zinc mines anywhere in the world.
"Most of our focus is: how do we find it ourselves?"
After years of exploring for copper in Mongolia, Ivanhoe Mines chairman Robert Friedland wants to restart the long-dormant Kipushi zinc mine in the Democratic Republic of Congo.
"We believe that market conditions are ideal as we evaluate the available options to return Kipushi to production," Friedland said in a statement announcing the prospect of restarting the mine at a cost of $409 million.
Meanwhile, Jonathan Downes, chief executive of Australia's Ironbark Zinc, said he is closer than ever to developing a mine in Greenland discovered 23 years ago.
China Non Ferrous (NFC) has already agreed to construct the mine and provide 70 percent of the debt funding in exchange for 30 percent of the zinc.
Separately, Ironbark has entered into a $50 million funding and supply arrangement with mining giant Glencore, its biggest shareholder.
"With zinc inventories down and the price up, our stars are starting to align," Downes said.
Reporting by James Regan; Additional reporting by Mitra Taj in Lima and Ruby Lian in Shanghai; Editing by Joseph Radford