of interest, page-2

27
IV Industry overview
Introduction
79 Australian mineral exploration spending in 2006 rose 29% to a record
$1,464 million due to strong price growth and increasing demand for many
commodities, particularly from China. Expenditure on exploration for mineral
sands in Australia in 2006 was $31.3 million, compared with $30.1 million in
20054.
80 The main mineral sands groups are titanium and zircon. Titanium is the ninth
most abundant element in the earth's crust and occurs in various mineral
forms. Titanium minerals have unique optical properties making them ideally
suited for use as an opacifier5. Consequently, some 93% of all titanium
minerals are used as feedstock to produce titanium pigments, and are included
in the manufacture of products such as coatings, paints and plastics.
81 Titanium minerals are available in several different forms, consequently
demand for specific titanium minerals products varies. Titanium dioxide
content determines the quality and price of the titanium mineral, and
ultimately the optimal end use. The inclusion of chromium, aluminium and
iron can also affect quality and price. Broadly, titanium minerals are sold in a
number of naturally-occurring and synthetically-modified forms.
Mining and processing
82 The major known mineral sand deposits are in Australia, India, southern
Africa and the USA. Mineral sands generally occur as sand-style deposits,
formed in beach environments. Ilmenite is also found in hard rock deposits in
Canada, China and Norway.6
83 Australia's mineral sands deposits occur along the coast of eastern Australia
from central New South Wales (NSW) to Cape York in Queensland. Large
ancient beach deposits are also found as far inland as Ouyen in Victoria and
south-western NSW. In Western Australia (WA), deposits are distributed
from the southern tip of the state to Geraldton and are located at the present
coastline or as ancient deposits up to 35 km inland.7
84 Dredged or dry-mined mineral sand concentrates are sent to mills (plants) and
the individual minerals are separated using their different magnetic and
electrical properties at various elevated temperatures. Typical methods of
separation include magnetic separation (ilmenite is magnetic whereas zircon is
4 Source: www.australianminesatlas.gov.au, accessed 4 June 2008.
5 An opacifier is a substance added to a material to make it opaque and its applications include ceramic
glaze, paper and paint.
6 Source: Iluka Resources prospectus dated 19 March 2008.
7 Source: www.australianminesatlas.gov.au, accessed 4 June 2008.
28
not), gravity separation and electrostatic separation (conductive minerals are
separated from non-conductive minerals).
85 The principal components of mineral sands deposits are the titanium minerals
rutile (containing 95-96% TiO2), leucoxene (containing 65-92% TiO2) and
ilmenite (containing 35-65% TiO2), as well as zircon (ZrSiO4). Titanium
dioxide products are more prevalent than zircon, with an average titanium
dioxide to zircon ratio of 5:1 in typical mineral sands deposits.8 Rutile and
ilmenite are used primarily in the production of titanium dioxide pigment.
86 Ilmenite can be upgraded to synthetic rutile (containing 87-94% TiO2), by
removing contained iron. Synthetic rutile can then be processed in the same
way as naturally-occurring rutile9.
87 Titanium dioxide pigment is produced by either the chloride process or the
sulphate process. The chloride process accounts for about 55% of all pigment
production and typically consumes high-grade feedstocks (rutile and synthetic
rutile). The sulphate process typically consumes low-grade feedstocks (eg
ilmenite). Of the two the chloride process is more efficient and generates less
waste.
88 The following diagram illustrates the main stages of titanium mineral
processing.
8 Source: Iluka Resources prospectus dated 19 March 2008.
9 Source: IBISWorld.
Mineral sands ore
Zircon
(ZrSiO4)
Ilmenite
(35%-65% TiO2)
Rutile
(95% TiO2)
Leucoxene
(65%-92%%
TiO2)
Titanium tetrachloride, (TiCl4)
Synthetic
rutile
White pigment Titanium metal
Physical separation processes
Chloride
process
Sulphate
process
Titanium Product Development processing
29
89 Zirconium (Zr) is the 18th most abundant element on Earth, and is three times
more abundant than copper. It occurs in nature as the free oxide baddeleyite
(ZrO2), but most commonly as zircon, a compound with silica. Zircon, a
hard, glassy mineral, is milled to produce a powder that can be used as an
opacifier in ceramics applications. Zircon is also used as the source material
of zirconia and a wide range of zirconium-based chemicals.10
End use applications
Titanium
90 Titanium dioxide pigment has excellent brightness and high opacity and has
replaced lead carbonate pigments in paint for covering undercoats. Around
93% of titanium dioxide is used as a white pigment in paint, plastic and paper.
It is also used in sunscreens and as a photocatalyst in chemical-based solar
cells.
91 Titanium metal is used in specialty applications where its physical properties
such as strength11, appearance, weight, corrosion resistance and
biocompatibility justify its high cost relative to other metals. Aerospace
applications have historically dominated titanium metal consumption, but it is
increasingly being used in military armour, sports equipment and medical
implants. In 2005, North America accounted for 52% of world titanium metal
consumption12. A summary of the end uses of titanium dioxide is as follows:
10 Source: Iluka Resources prospectus dated 19 March 2008.
11 The tensile strength of commercially pure titanium is equal to that of steel alloys and twice that of
the most commonly used aluminium alloy.
12 Source: ABARE.
Plastics, 22%
Paper, 8%
Other, 10%
Paint and Coatings,
53%
Metal, 4%
Welding, 3%
Pigment, 93%
Titanium dioxide minerals – end users
30
Zircon
92 Zirconium metal is fairly hard, does not conduct heat well, and is resistant to
corrosion by acids and other chemicals. Zirconium oxide, manufactured as a
ceramic, can be used to make crucibles for melting metals, gas turbines, liners
for jet and rocket motor tubes and refractories such as the facing of a hightemperature
furnace wall. These uses account for about 80% of the demand
for zircon. Other major uses are high-tech ceramics, electronic components
and pigments for glass and glazing13.
93 Zirconium has also become an important element in the steel industry, where
it is used to remove nitrogen and sulphur from iron, thereby enhancing the
metallurgical quality of the steel. When added to iron to create an alloy,
zirconium improves iron’s machineability, toughness, and ductility. Zircon is
also marketed as a natural gemstone, and its oxide is processed to produce the
diamond simulant, cubic zirconia14:
Substitution risk
Titanium
94 There is very low substitution risk for titanium minerals because there are no
commercially known substitutes for titanium pigment. Titanium pigment
possesses superior opacifying properties to other pigments. It is non-toxic and
has replaced lead oxide pigments as an opacifier in coatings. Titanium
pigment is also non-recyclable and UV resistant. In addition, new uses for
13 Source: IBISWorld.
14 Source: USGS.
Other, 1%
Foundry, 13%
Chemicals, 15%
TV glass, 3%
Refractory, 13%
Ceramics, 55%
Zircon – end users
31
titanium dioxide pigment continue to be identified in niche markets, such as
non-particles.15
95 There are few materials that possess titanium metal’s strength-to-weight ratio
and corrosion resistance. In high-strength applications, titanium competes
with aluminum, composites, intermetallics, steel, and superalloys. Aluminum,
nickel, specialty steels, and zirconium alloys may be substituted for titanium
for applications that require corrosion resistance.16
Zircon
96 The main substitutes for zircon are alumina, high-purity clays and feldspars.
The degree of substitution which can occur in ceramic applications is a
function of the price of zircon opacifier (or flour) versus the competitive
products and the required quality of the tile. Recently there has only been
some thrifting of zircon in ceramics when zircon sand prices were in a range
of US$800-850/ t free on board.17
97 Chromite and olivine can be used instead of zircon for some foundry
applications. Dolomite and spinel refractories can also substitute for zircon in
certain high-temperature applications. Niobium (columbium), stainless steel,
and tantalum provide limited substitution in nuclear applications, while
titanium and synthetic materials may substitute in some chemical plant uses.18
Global reserves and production
Titanium
98 The global titanium dioxide feedstock market was estimated at 6.0 mt of
titanium dioxide units in 2007, and generated approximately $US2.0 billion in
revenue19. Australia has the world's second largest reserves of ilmenite and
the largest reserves of rutile. China has the world's largest reserves of
ilmenite, around one third of global reserves20, however China has no recorded
rutile reserves. India has the world's third largest reserves of ilmenite and
rutile:
15 Source: Iluka Resources prospectus dated 19 March 2008.
16 Source: US Geological Survey, Mineral Commodity Summaries, January 2008.
17 Source: Iluka Resources prospectus dated 19 March 2008.
18 Source: US Geological Survey, Mineral Commodity Summaries, January 2008.
19 Source: Iluka Resources prospectus dated 19 March 2008.
20 The quality and accessibility of Chinese reserves is unknown.
32
Global Reserves of Titanium Minerals: Top 10 in 2006
0
50
100
150
200
250
China Australia India South Africa Norway Canada Mozambique Brazil CIS/Ukraine United
States
Ilmenite Rutile
Source: ABARE
Mt
99 In 2006, world production of ilmenite concentrates was around 11.7 Mt, with
the top three countries (Australia, Canada and South Africa) accounting for
65% of global production. World rutile concentrate production in 2006 was
522 kt, with Australia representing 44% of global production. WA accounted
for around half of Australia's production21:
Top 10 Producers of Titanium Minerals: 2006
0
700
1,400
2,100
2,800
3,500
Australia Canada South Africa China Norway India CIS/Ukraine United
States
Vietnam Malaysia
Ilmenite Rutile Synthetic Rutile
Source: ABARE
kt
100 Global synthetic rutile production in 2006 was 818 kt (representing only 7%
of ilmenite production), of which Australia accounted for 86%. All of
Australia's synthetic rutile is currently produced in WA. However, Austpac
Resources has entered into an agreement with BHP Billiton to construct a
3,000 tpa synthetic rutile pilot plant in New South Wales22.
21 Source: ABARE.
22 Source: ABARE.
33
Zircon
101 The global zircon market in 2007 was estimated at around 1.25 mt and
generated approximately US$0.9 billion in revenue. Australia’s economically
demonstratable resource (EDR) of zircon is the world's largest. Australia's
EDR of zircon increased in 2006, to 33.9 mt, representing 43% of world
EDR23.
Supply and demand
Titanium
102 The global supply of titanium minerals is concentrated, with the top five
producers (of which Bemax is one), accounting for greater than 50% of the
total production. These producers include major global mining houses and
pure-play producers like Bemax:
103 Australian mineral sand producers include Iluka, Consolidated Rutile24,
Bemax, the TiWest Joint Venture and Doral Mineral Sands. In addition,
production commenced at Matilda Mineral's Andranangoo deposit on Tiwi
Islands in Northern Territory and in the Mindarie heavy minerals project, held
by Australian Zircon, in South Australia.
104 Production of titanium dioxide pigment is also highly consolidated with the
top five producers accounting for almost 67% of global production in 2007.
The market leader is Du Pont with a market share of 20%, while the other
major producers include Cristal (16%), Tronox, Kronos and Huntsman (each
with about an 11% share of capacity). Most of these producers have
production facilities centred on North America and Western Europe, which
have historically been the largest markets for pigment. In 2007, global
23 Source: Geoscience Australia.
24 Consolidated Rutile is 51% owned by Iluka.
Rio Tinto, 20%
Titania, 6%
Indian Rare Earths, 4%
Bemax Resources, 6%
Exxaro Resources, 8%
BHP Billiton, 7%
Tiwest JV, 5%
E I du Pont de
Other, 23% Nemours, 2%
Iluka Resources, 19%
Titanium dioxide mineral producers,
2007
34
pigment production from over 110 plants was around 5.1 mt, an increase of
1.5% over 2006, valued at close to US$10.5 billion
105 Titanium metal’s use in specialised applications, especially the aerospace
industry, means that demand has been highly variable. The last fall in US
consumption occurred in 2002, following the impact on the airline industry of
the September 2001 terrorist attacks in the USA. Recently, consumption in
the USA has increased strongly, from 17 kt in 2003 to 30 kt in 2006, reflecting
a strong recovery in aircraft orders25.
Zircon
106 The zircon market is characterised by a concentrated supply side and a
fragmented customer base. Nearly all suppliers of zircon are also suppliers of
titanium minerals, but the relative proportions differ depending on the mineral
assemblage of each producer's deposits. The top five producers accounted for
around 75% of zircon production in 200726:
107 Zircon producers sell their products to a range of independent millers for the
production of flour and opacifiers as well as through direct sales to a diverse
group of end-users.
108 TZMI (a leading industry expert)27 in a report commissioned by Iluka in
January 200828, made the following comments about zircon demand:
“Over the period since 1990, demand growth has been by far the strongest in
China at around 15% pa. Chinese zircon demand experienced considerable
25 Source: ABARE.
26 Source: Iluka Resources prospectus dated 19 March 2008.
27 TZ Minerals International Pty Ltd.
28 Source: Report prepared by TZMI cited in Iluka Resources prospectus dated 19 March 2008.
Bemax Resources, 5%
Rio Tinto, 8%
Exxaro Resources,
12%
BHP Billiton, 9%
Other, 19%
Iluka Resources, 39%
E I du Pont de
Nemours, 3%
Tiwest JV, 5%
Zircon producers, 2007
35
growth during the early 1990s as the country established an extensive ceramic
tile production capability.
Zircon demand more than doubled from 140,000 tonnes to 311,000 tonnes
over the six year period, 1999-2005. In 2007, China’s estimated consumption
was about 380,000 tonnes, or 30% of the global demand, and in 2008 the
country is poised to surpass the long dominant Western European market to
become the largest consuming region in the world. Its consumption growth is
expected to continue such that, provided continued supply is available, by
2015 China's total zircon consumption is forecast to reach about 620,000
tonnes, or nearly 35% of global demand.”
109 The drivers of Chinese demand have been production of ceramics and
zirconium chemicals, for direct use as chemicals or in the manufacture of
chemical zirconia, and this is expected to continue into the future.
Prices
Titanium
110 The Australian production and prices for rutile and synthetic rutile are set out
below29:
140
180
220
260
300
Sep 99 Aug 00 Jul 01 Jun 02 May 03 Apr 04 Mar 05 Feb 06 Jan 07 Dec 07
$600
$700
$800
$900
$1,000
Quarterly production volume
Price, bagged
Source: ABARE. Volumes and prices are four quarter rolling averages.
kt A$/t
Rutile and Synthetic Rutile – Australian production and price
(quarterly)
111 Market conditions faced by mineral sands producers have changed markedly
post 2000. The slowing of world growth in 2001 was made worse by the
September terrorist attacks in the US. Economic growth worldwide remained
weak well into 2002, and demand for titanium pigment and hence titanium
minerals deteriorated. By mid-2002 there were signs that the demand for
29 The graph reflects the price for bagged rather than bulk rutile. Bagged rutile trades at a premium to
the bulk price received by Bemax which is currently around US$550 per tonne.
36
titanium minerals was rising in the wake of higher demand for titanium
pigment, especially from the Asian region. Generally weak demand
conditions were seen in 2002 to 2003. Outputs and exports of rutile remained
fairly flat, while real export prices fell as competitors fought to maintain
markets in a weak demand climate. Prices were also impacted by increased
production, with the opening of a new mine in October 200230.
112 The production of rutile and ilmenite fell in response to lower prices,
reflecting weak demand for titanium minerals in 2003-04. Demand improved
in 2004-05 and rutile export prices rose by 7.6%, although ilmenite prices fell
by 8.8%. Favourable conditions prevailed over the next two years and are
expected to continue through 2007-08.
113 Iluka, in its recently released prospectus31, cites the company's own analysis of
the long-term historical pricing trends of rutile, synthetic rutile, chloride slag
and both chloride ilmenite and sulphate ilmenite32:
114 Utilising a line of “best fit” Iluka’s analysis indicated a compound annual
growth rate (CAGR) of 4.3% for rutile prices over the period 1970 to 2007
(converted into nominal US$/t FOB terms). Basing the line of best fit from
1975 (because 1970 was considered a low period in rutile pricing) results in a
CAGR of 2.5%. A CAGR of 2.7% was calculated for synthetic rutile from
1970 to the end of 2007. A similar CAGR was calculated for overall average
high grade titanium dioxide chloride feedstock prices.
115 Going forward prices will depend on the global supply / demand balance for
individual products which are difficult to forecast as they rely on the timing
and success of new projects coming on stream.
116 In Iluka’s recent prospectus it stated that for the period to 2015 the pigment
industry is likely to exceed the long-term average 3.0% per annum growth rate
trend in consumption achieved since 1970, because there is currently not
expected to be any marked slow down in demand for titanium dioxide pigment
in China. The growing demand base for China is expected to begin to lift the
global demand growth rate as the size of the Chinese demand achieves
significant global proportions.
117 However, IBISWorld expects that rutile prices will come under downward
pressure from higher levels of output of both naturally-occurring product and
synthetic rutile, but demand for ilmenite will expand somewhat, lifting
prices33.
30 Source: IBISWorld.
31 Source: Iluka Resources prospectus dated 19 March 2008.
32 Iluka sourced chloride ilmenite and sulphate ilmenite historical prices (nominal FOB) from TZMI.27
IV Industry overview
Introduction
79 Australian mineral exploration spending in 2006 rose 29% to a record
$1,464 million due to strong price growth and increasing demand for many
commodities, particularly from China. Expenditure on exploration for mineral
sands in Australia in 2006 was $31.3 million, compared with $30.1 million in
20054.
80 The main mineral sands groups are titanium and zircon. Titanium is the ninth
most abundant element in the earth's crust and occurs in various mineral
forms. Titanium minerals have unique optical properties making them ideally
suited for use as an opacifier5. Consequently, some 93% of all titanium
minerals are used as feedstock to produce titanium pigments, and are included
in the manufacture of products such as coatings, paints and plastics.
81 Titanium minerals are available in several different forms, consequently
demand for specific titanium minerals products varies. Titanium dioxide
content determines the quality and price of the titanium mineral, and
ultimately the optimal end use. The inclusion of chromium, aluminium and
iron can also affect quality and price. Broadly, titanium minerals are sold in a
number of naturally-occurring and synthetically-modified forms.
Mining and processing
82 The major known mineral sand deposits are in Australia, India, southern
Africa and the USA. Mineral sands generally occur as sand-style deposits,
formed in beach environments. Ilmenite is also found in hard rock deposits in
Canada, China and Norway.6
83 Australia's mineral sands deposits occur along the coast of eastern Australia
from central New South Wales (NSW) to Cape York in Queensland. Large
ancient beach deposits are also found as far inland as Ouyen in Victoria and
south-western NSW. In Western Australia (WA), deposits are distributed
from the southern tip of the state to Geraldton and are located at the present
coastline or as ancient deposits up to 35 km inland.7
84 Dredged or dry-mined mineral sand concentrates are sent to mills (plants) and
the individual minerals are separated using their different magnetic and
electrical properties at various elevated temperatures. Typical methods of
separation include magnetic separation (ilmenite is magnetic whereas zircon is
4 Source: www.australianminesatlas.gov.au, accessed 4 June 2008.
5 An opacifier is a substance added to a material to make it opaque and its applications include ceramic
glaze, paper and paint.
6 Source: Iluka Resources prospectus dated 19 March 2008.
7 Source: www.australianminesatlas.gov.au, accessed 4 June 2008.
28
not), gravity separation and electrostatic separation (conductive minerals are
separated from non-conductive minerals).
85 The principal components of mineral sands deposits are the titanium minerals
rutile (containing 95-96% TiO2), leucoxene (containing 65-92% TiO2) and
ilmenite (containing 35-65% TiO2), as well as zircon (ZrSiO4). Titanium
dioxide products are more prevalent than zircon, with an average titanium
dioxide to zircon ratio of 5:1 in typical mineral sands deposits.8 Rutile and
ilmenite are used primarily in the production of titanium dioxide pigment.
86 Ilmenite can be upgraded to synthetic rutile (containing 87-94% TiO2), by
removing contained iron. Synthetic rutile can then be processed in the same
way as naturally-occurring rutile9.
87 Titanium dioxide pigment is produced by either the chloride process or the
sulphate process. The chloride process accounts for about 55% of all pigment
production and typically consumes high-grade feedstocks (rutile and synthetic
rutile). The sulphate process typically consumes low-grade feedstocks (eg
ilmenite). Of the two the chloride process is more efficient and generates less
waste.
88 The following diagram illustrates the main stages of titanium mineral
processing.
8 Source: Iluka Resources prospectus dated 19 March 2008.
9 Source: IBISWorld.
Mineral sands ore
Zircon
(ZrSiO4)
Ilmenite
(35%-65% TiO2)
Rutile
(95% TiO2)
Leucoxene
(65%-92%%
TiO2)
Titanium tetrachloride, (TiCl4)
Synthetic
rutile
White pigment Titanium metal
Physical separation processes
Chloride
process
Sulphate
process
Titanium Product Development processing
29
89 Zirconium (Zr) is the 18th most abundant element on Earth, and is three times
more abundant than copper. It occurs in nature as the free oxide baddeleyite
(ZrO2), but most commonly as zircon, a compound with silica. Zircon, a
hard, glassy mineral, is milled to produce a powder that can be used as an
opacifier in ceramics applications. Zircon is also used as the source material
of zirconia and a wide range of zirconium-based chemicals.10
End use applications
Titanium
90 Titanium dioxide pigment has excellent brightness and high opacity and has
replaced lead carbonate pigments in paint for covering undercoats. Around
93% of titanium dioxide is used as a white pigment in paint, plastic and paper.
It is also used in sunscreens and as a photocatalyst in chemical-based solar
cells.
91 Titanium metal is used in specialty applications where its physical properties
such as strength11, appearance, weight, corrosion resistance and
biocompatibility justify its high cost relative to other metals. Aerospace
applications have historically dominated titanium metal consumption, but it is
increasingly being used in military armour, sports equipment and medical
implants. In 2005, North America accounted for 52% of world titanium metal
consumption12. A summary of the end uses of titanium dioxide is as follows:
10 Source: Iluka Resources prospectus dated 19 March 2008.
11 The tensile strength of commercially pure titanium is equal to that of steel alloys and twice that of
the most commonly used aluminium alloy.
12 Source: ABARE.
Plastics, 22%
Paper, 8%
Other, 10%
Paint and Coatings,
53%
Metal, 4%
Welding, 3%
Pigment, 93%
Titanium dioxide minerals – end users
30
Zircon
92 Zirconium metal is fairly hard, does not conduct heat well, and is resistant to
corrosion by acids and other chemicals. Zirconium oxide, manufactured as a
ceramic, can be used to make crucibles for melting metals, gas turbines, liners
for jet and rocket motor tubes and refractories such as the facing of a hightemperature
furnace wall. These uses account for about 80% of the demand
for zircon. Other major uses are high-tech ceramics, electronic components
and pigments for glass and glazing13.
93 Zirconium has also become an important element in the steel industry, where
it is used to remove nitrogen and sulphur from iron, thereby enhancing the
metallurgical quality of the steel. When added to iron to create an alloy,
zirconium improves iron’s machineability, toughness, and ductility. Zircon is
also marketed as a natural gemstone, and its oxide is processed to produce the
diamond simulant, cubic zirconia14:
Substitution risk
Titanium
94 There is very low substitution risk for titanium minerals because there are no
commercially known substitutes for titanium pigment. Titanium pigment
possesses superior opacifying properties to other pigments. It is non-toxic and
has replaced lead oxide pigments as an opacifier in coatings. Titanium
pigment is also non-recyclable and UV resistant. In addition, new uses for
13 Source: IBISWorld.
14 Source: USGS.
Other, 1%
Foundry, 13%
Chemicals, 15%
TV glass, 3%
Refractory, 13%
Ceramics, 55%
Zircon – end users
31
titanium dioxide pigment continue to be identified in niche markets, such as
non-particles.15
95 There are few materials that possess titanium metal’s strength-to-weight ratio
and corrosion resistance. In high-strength applications, titanium competes
with aluminum, composites, intermetallics, steel, and superalloys. Aluminum,
nickel, specialty steels, and zirconium alloys may be substituted for titanium
for applications that require corrosion resistance.16
Zircon
96 The main substitutes for zircon are alumina, high-purity clays and feldspars.
The degree of substitution which can occur in ceramic applications is a
function of the price of zircon opacifier (or flour) versus the competitive
products and the required quality of the tile. Recently there has only been
some thrifting of zircon in ceramics when zircon sand prices were in a range
of US$800-850/ t free on board.17
97 Chromite and olivine can be used instead of zircon for some foundry
applications. Dolomite and spinel refractories can also substitute for zircon in
certain high-temperature applications. Niobium (columbium), stainless steel,
and tantalum provide limited substitution in nuclear applications, while
titanium and synthetic materials may substitute in some chemical plant uses.18
Global reserves and production
Titanium
98 The global titanium dioxide feedstock market was estimated at 6.0 mt of
titanium dioxide units in 2007, and generated approximately $US2.0 billion in
revenue19. Australia has the world's second largest reserves of ilmenite and
the largest reserves of rutile. China has the world's largest reserves of
ilmenite, around one third of global reserves20, however China has no recorded
rutile reserves. India has the world's third largest reserves of ilmenite and
rutile:
15 Source: Iluka Resources prospectus dated 19 March 2008.
16 Source: US Geological Survey, Mineral Commodity Summaries, January 2008.
17 Source: Iluka Resources prospectus dated 19 March 2008.
18 Source: US Geological Survey, Mineral Commodity Summaries, January 2008.
19 Source: Iluka Resources prospectus dated 19 March 2008.
20 The quality and accessibility of Chinese reserves is unknown.
32
Global Reserves of Titanium Minerals: Top 10 in 2006
0
50
100
150
200
250
China Australia India South Africa Norway Canada Mozambique Brazil CIS/Ukraine United
States
Ilmenite Rutile
Source: ABARE
Mt
99 In 2006, world production of ilmenite concentrates was around 11.7 Mt, with
the top three countries (Australia, Canada and South Africa) accounting for
65% of global production. World rutile concentrate production in 2006 was
522 kt, with Australia representing 44% of global production. WA accounted
for around half of Australia's production21:
Top 10 Producers of Titanium Minerals: 2006
0
700
1,400
2,100
2,800
3,500
Australia Canada South Africa China Norway India CIS/Ukraine United
States
Vietnam Malaysia
Ilmenite Rutile Synthetic Rutile
Source: ABARE
kt
100 Global synthetic rutile production in 2006 was 818 kt (representing only 7%
of ilmenite production), of which Australia accounted for 86%. All of
Australia's synthetic rutile is currently produced in WA. However, Austpac
Resources has entered into an agreement with BHP Billiton to construct a
3,000 tpa synthetic rutile pilot plant in New South Wales22.
21 Source: ABARE.
22 Source: ABARE.
33
Zircon
101 The global zircon market in 2007 was estimated at around 1.25 mt and
generated approximately US$0.9 billion in revenue. Australia’s economically
demonstratable resource (EDR) of zircon is the world's largest. Australia's
EDR of zircon increased in 2006, to 33.9 mt, representing 43% of world
EDR23.
Supply and demand
Titanium
102 The global supply of titanium minerals is concentrated, with the top five
producers (of which Bemax is one), accounting for greater than 50% of the
total production. These producers include major global mining houses and
pure-play producers like Bemax:
103 Australian mineral sand producers include Iluka, Consolidated Rutile24,
Bemax, the TiWest Joint Venture and Doral Mineral Sands. In addition,
production commenced at Matilda Mineral's Andranangoo deposit on Tiwi
Islands in Northern Territory and in the Mindarie heavy minerals project, held
by Australian Zircon, in South Australia.
104 Production of titanium dioxide pigment is also highly consolidated with the
top five producers accounting for almost 67% of global production in 2007.
The market leader is Du Pont with a market share of 20%, while the other
major producers include Cristal (16%), Tronox, Kronos and Huntsman (each
with about an 11% share of capacity). Most of these producers have
production facilities centred on North America and Western Europe, which
have historically been the largest markets for pigment. In 2007, global
23 Source: Geoscience Australia.
24 Consolidated Rutile is 51% owned by Iluka.
Rio Tinto, 20%
Titania, 6%
Indian Rare Earths, 4%
Bemax Resources, 6%
Exxaro Resources, 8%
BHP Billiton, 7%
Tiwest JV, 5%
E I du Pont de
Other, 23% Nemours, 2%
Iluka Resources, 19%
Titanium dioxide mineral producers,
2007
34
pigment production from over 110 plants was around 5.1 mt, an increase of
1.5% over 2006, valued at close to US$10.5 billion
105 Titanium metal’s use in specialised applications, especially the aerospace
industry, means that demand has been highly variable. The last fall in US
consumption occurred in 2002, following the impact on the airline industry of
the September 2001 terrorist attacks in the USA. Recently, consumption in
the USA has increased strongly, from 17 kt in 2003 to 30 kt in 2006, reflecting
a strong recovery in aircraft orders25.
Zircon
106 The zircon market is characterised by a concentrated supply side and a
fragmented customer base. Nearly all suppliers of zircon are also suppliers of
titanium minerals, but the relative proportions differ depending on the mineral
assemblage of each producer's deposits. The top five producers accounted for
around 75% of zircon production in 200726:
107 Zircon producers sell their products to a range of independent millers for the
production of flour and opacifiers as well as through direct sales to a diverse
group of end-users.
108 TZMI (a leading industry expert)27 in a report commissioned by Iluka in
January 200828, made the following comments about zircon demand:
“Over the period since 1990, demand growth has been by far the strongest in
China at around 15% pa. Chinese zircon demand experienced considerable
25 Source: ABARE.
26 Source: Iluka Resources prospectus dated 19 March 2008.
27 TZ Minerals International Pty Ltd.
28 Source: Report prepared by TZMI cited in Iluka Resources prospectus dated 19 March 2008.
Bemax Resources, 5%
Rio Tinto, 8%
Exxaro Resources,
12%
BHP Billiton, 9%
Other, 19%
Iluka Resources, 39%
E I du Pont de
Nemours, 3%
Tiwest JV, 5%
Zircon producers, 2007
35
growth during the early 1990s as the country established an extensive ceramic
tile production capability.
Zircon demand more than doubled from 140,000 tonnes to 311,000 tonnes
over the six year period, 1999-2005. In 2007, China’s estimated consumption
was about 380,000 tonnes, or 30% of the global demand, and in 2008 the
country is poised to surpass the long dominant Western European market to
become the largest consuming region in the world. Its consumption growth is
expected to continue such that, provided continued supply is available, by
2015 China's total zircon consumption is forecast to reach about 620,000
tonnes, or nearly 35% of global demand.”
109 The drivers of Chinese demand have been production of ceramics and
zirconium chemicals, for direct use as chemicals or in the manufacture of
chemical zirconia, and this is expected to continue into the future.
Prices
Titanium
110 The Australian production and prices for rutile and synthetic rutile are set out
below29:
140
180
220
260
300
Sep 99 Aug 00 Jul 01 Jun 02 May 03 Apr 04 Mar 05 Feb 06 Jan 07 Dec 07
$600
$700
$800
$900
$1,000
Quarterly production volume
Price, bagged
Source: ABARE. Volumes and prices are four quarter rolling averages.
kt A$/t
Rutile and Synthetic Rutile – Australian production and price
(quarterly)
111 Market conditions faced by mineral sands producers have changed markedly
post 2000. The slowing of world growth in 2001 was made worse by the
September terrorist attacks in the US. Economic growth worldwide remained
weak well into 2002, and demand for titanium pigment and hence titanium
minerals deteriorated. By mid-2002 there were signs that the demand for
29 The graph reflects the price for bagged rather than bulk rutile. Bagged rutile trades at a premium to
the bulk price received by Bemax which is currently around US$550 per tonne.
36
titanium minerals was rising in the wake of higher demand for titanium
pigment, especially from the Asian region. Generally weak demand
conditions were seen in 2002 to 2003. Outputs and exports of rutile remained
fairly flat, while real export prices fell as competitors fought to maintain
markets in a weak demand climate. Prices were also impacted by increased
production, with the opening of a new mine in October 200230.
112 The production of rutile and ilmenite fell in response to lower prices,
reflecting weak demand for titanium minerals in 2003-04. Demand improved
in 2004-05 and rutile export prices rose by 7.6%, although ilmenite prices fell
by 8.8%. Favourable conditions prevailed over the next two years and are
expected to continue through 2007-08.
113 Iluka, in its recently released prospectus31, cites the company's own analysis of
the long-term historical pricing trends of rutile, synthetic rutile, chloride slag
and both chloride ilmenite and sulphate ilmenite32:
114 Utilising a line of “best fit” Iluka’s analysis indicated a compound annual
growth rate (CAGR) of 4.3% for rutile prices over the period 1970 to 2007
(converted into nominal US$/t FOB terms). Basing the line of best fit from
1975 (because 1970 was considered a low period in rutile pricing) results in a
CAGR of 2.5%. A CAGR of 2.7% was calculated for synthetic rutile from
1970 to the end of 2007. A similar CAGR was calculated for overall average
high grade titanium dioxide chloride feedstock prices.
115 Going forward prices will depend on the global supply / demand balance for
individual products which are difficult to forecast as they rely on the timing
and success of new projects coming on stream.
116 In Iluka’s recent prospectus it stated that for the period to 2015 the pigment
industry is likely to exceed the long-term average 3.0% per annum growth rate
trend in consumption achieved since 1970, because there is currently not
expected to be any marked slow down in demand for titanium dioxide pigment
in China. The growing demand base for China is expected to begin to lift the
global demand growth rate as the size of the Chinese demand achieves
significant global proportions.
117 However, IBISWorld expects that rutile prices will come under downward
pressure from higher levels of output of both naturally-occurring product and
synthetic rutile, but demand for ilmenite will expand somewhat, lifting
prices33.
30 Source: IBISWorld.
31 Source: Iluka Resources prospectus dated 19 March 2008.
32 Iluka sourced chloride ilmenite and sulphate ilmenite historical prices (nominal FOB) from TZMI.v