A MELBOURNE-based mineral sands player is hopeful of following in the footsteps of market leader Iluka Resources. By Stephen Bell
After a horrid 2009, Australian mineral sands producers are gearing up for much brighter times ahead. Prices are rising as global demand for zircon, ilmenite and rutile rebounds from the depressed GFC levels. In fact, the tide has turned so quickly that market gurus expect a recent inventory glut to soon vanish, leading to product shortages. Industry consultant TZMI, for instance, has forecast a looming structural deficit, as demand recovers and producers struggle to lift output.
Iluka Resources, the worlds biggest zircon producer, is doing its best to meet rising demand by ramping up its new Murray Basin Stage 2 and Jacinth-Ambrosia projects. The company has advised customers of a zircon price hike, starting April 1, with a further increase planned for the second half.
Demand is recovering quicker than anticipated from Europe and the US and inventories of zircon are being depleted faster than expected, said analysts at Citi.
This bodes well for price increases through 2010-11.
Melbournes Mineral Deposits hopes to emulate Iluka by making waves in the global zircon trade. A bankable feasibility study on its long-life Grande Côte project in Senegal, west Africa, is due out in May. The company aims to spin out the venture into a $US200 million initial public offer later this year, leading to the start of construction early in 2011. The world-scale deposit has a mine life of several decades and could be in production by early 2013.
After six years of exploration and feasibility studies costing $US100 million, the stars are lining up for Grande Côte, according to Mineral Deposits executive chairman Nic Limb.
It is pretty clear from TZMIs work that both the zircon and titanium markets will go into a pretty substantial supply deficit over the next couple of years, which gives us a fair bit of confidence that weve got the timing of the project pretty right, Limb told Australias Mining Monthly. There are quite nasty shortages appearing in both those commodities.
Demand for zircon and titanium dioxide is closely linked to world growth, given their usage in products such as ceramic tiles, paints and other coatings. The reversal of last years downturn, where zircon consumption slumped by a quarter, has proved a boon for Ilukas share price up more than 40% since the start of February. It augurs well for Mineral Deposits financing of Grande Côte, which has an estimated cost of $US400 million.
As a general statement, we are targeting 50 per cent debt and 50 per cent equity, which implies something close to $US200 million [for the IPO], Limb said.
Mineral Deposits had not indicated how much it would own of the new vehicle, but Limb agreed that a 50% holding was probably in the ballpark.
Asked whether a cornerstone investor would be sought for either the IPO or the project, he said: There is a lot of interest coming from traditional markets in China, and we are basically sifting through that. So that remains a possibility and it is most likely to be a customer or an offtake partner.
China, where a massive urbanisation program has made the country one of the worlds largest consumers of mineral sand products, is targeting Grande Côtes ilmenite. The commodity is used in the manufacture of paint pigments.
Subject to the final feasibility study, Mineral Deposits hopes to launch the IPO late this year, clearing the way for the start of construction.
The feasibility is a no brainer it is all about the financing, Limb said, adding that the company was already in discussions with banks about the debt component.
Located on a coastal dune system northeast of Senegals capital, Dakar, Grande Côte extends northward for more than 100km. The mineralised system averages 2km in width, with major deposits identified at Diogo, Mboro, Fass Boye and Lompoul. Inferred mineral resources are estimated at 1.3 billion tonnes grading 2% heavy minerals.
At design capacity, the proposed mining rate of 55 million tonnes per annum will produce 75,000-85,000t of zircon a year, making it one of the larger zircon mines in the world. It also will pump out up to 600,000tpa of ilmenite, with smaller amounts of rutile and leucoxene. By comparison, Ilukas $420 million Jacinth Ambrosia mine in South Australia is expected to yield more than three times as much zircon at roughly 300,000tpa, reflecting its higher grades.
Ilukas project uses conventional dry mining, whereas Grande Côte will feature a floating dredge and concentrator, which separates out the heavy minerals and sprays the barren sands out the back. It allows the pond to be automatically backfilled as mining progresses. The deposit itself is a beach sand dune with no overburden, no clays and little vegetation.
So this will be very cheap dredge mining right towards the bottom of the cost curve, Limb said.
The heavy minerals will be pumped to a land-based dry plant, which separates the various products. New generation spirals have improved estimated zircon recoveries by about 5% from previous results.
Grande Côtes HM concentrate is expected to grade about 11% zircon and 70-80% ilmenite, which is a bulk commodity valued at roughly $US80-100 a tonne. Zircon, in contrast, fetches $US900-1000/t and rutile $US500/t. The zircon will be containerised and transported by road, with the ilmenite railed 80km to Dakar, Africas busiest port.
Grande Côtes $US400 million cost is well up on previous estimates, reflecting the increased engineering needed to move it from a zircon-only operation to one pouring out saleable ilmenite. It is based on pricing of all-new equipment and the experience gained from Mineral Deposits recent construction of the Sabodala gold mine, also in Senegal. The estimate incorporates a 28MW heavy fuel oil power station (similar to that built at Sabodala), a rail spur and rolling stock for bulk material movement, and owner costs.
It sounds like a lot of money, but for a project of this scale, it is actually very cheap, Limb said. The price tag would be much bigger had the company not enjoyed access to nearby infrastructure, such as a highway, railway lines and the port.
A lot of projects such as the big Rio Tinto one in Madagascar, which is similar size cost more than $US1 billion, and that is largely because of the sheer amount of infrastructure they had to build. So we are blessed to have all of that in place and available.
At the harbour, Mineral Deposits benefits from Dakar being the key incoming container port for west Africa. Exports the main one being phosphate at present are less crowded. The rail line, for instance, finishes at a bulk loader on a vacant wharf, ready to start shifting Grande Côtes ilmenite. Contrast that situation to the congestion and jostling for spare capacity by the iron ore juniors at Port Hedland.
Alongside the infrastructure free kick, Mineral Deposits says its orebody is very uniform, a fact appreciated by customers seeking consistency in their manufacturing processes.
Our product is well suited to the European and North American market, Limb said. A significant amount of zircon is consumed in the southern Mediterranean region.
Spain, France, Italy and Germany are all logical markets, given Senegals location. However, Limb said China was still showing strong interest in sourcing ilmenite supplies, given the forecast deficit.
Grande Côte may be a major greenfields development but Mineral Deposits is far from green in tackling it. The company operated mineral sands mines on Australias east coast until 2003, before turning its attention to Senegal.
Initially the move to Africa led to a change of commodities, in the form of Sabodala, which poured its first gold in March 2009. The 10-year operation is forecast to produce up to 180,000 ounces this year. It gives Limb plenty of confidence as the company prepares to revisit its mineral sands heritage, albeit on the other side of the world. Senegal is one of the more stable African countries, Limb said, noting the francophone nation has enjoyed a liberal democracy since independence in 1960. Clearly we operate very successfully, having a large gold mine there.
Indeed, the construction of Grande Côte will be virtually a transition from the gold job to mineral sands.
A lot of the heavy construction equipment, which we own, is still onsite, he said.
New equipment will come in via the nearby port, while contractors will be sourced from Senegal and surrounding countries such as Mauritania. With a construction workforce estimated at 1200, the projects scale is very similar to building the gold mine in 2008.
As for the inevitable queries about the African location, Limb points out that political risk stretches well beyond the dangers of military coups.
It extends to taxation regimes, he said. And we have a 15-year tax holiday in Senegal.
Try to get that in Australia. We also have a fiscal stabilisation agreement good luck trying to get the Australian government to actually stick to its word. Look at the Henry [tax] Review and what might happen to the industry, that is real political risk.
We have a 15-year tax holiday in Senegal. Try to get that in Australia.
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