Interesting article re mineral sands mining companies although...

Interesting article re mineral sands mining companies although no mention was made about mzi resources.

http://www.theaustralian.com.au/business/opinion/kloppers-outlines-the-next-boom-as-china-matures/story-fnciil7d-1226507011812

Kloppers outlines the next boom as China matures

BY: BARRY FITZGERALD From: The Australian October 31, 2012 12:00AM

BHP Billiton chief Marius Kloppers reckons that there is no need to worry about the "eventual moderation" in demand for iron ore and coal as China and other developing economies move on from being investment-led to being more consumption-led.

That's because in the consumption-led phase, there are opportunities to be had supplying the high demand that emerges for the so-called late-cycle commodities.

"As has been witnessed in other major economies as they have developed, this build-out of the capital stock in China will begin to plateau in due course. China's future needs will change and the focus will gradually switch to the next level of consumer goods, such as white goods, heating and airconditioning, cars, stoves, and other similar goods," Kloppers told BHP's London annual meeting.

"This progressive transition from an investment-led to a more consumption-led economy in China, and other developing economies, will naturally result in an eventual moderation of demand for commodities such as iron ore and coal, and an increase in demand for commodities such as copper and the suite of energy products."

Now there is no surprise that Kloppers was talking about BHP's book, which is the most diversified of the big miners. Apart from its oil and gas division, it has embarked on a feed-the-world strategy with the planned move in to Canadian potash. It will be high-growth stuff like potash that BHP believes will underpin overall commodity demand growth from the world's exploding middle classes: 50-80 per cent in the next 15 years.

Kloppers did not mention mineral sands - another late-cycle commodity that stands to benefit as China and other emerging economies start spending more on the niceties of life rather than another railway, another nuclear power station and the like.

Fair enough, BHP got out of mineral sands altogether last month with the $US1.91 billion sale of its 37 per cent interest in the massive Richards Bay mineral sands mining and smelting operation in Zululand, South Africa.

The buyer was BHP's arch enemy, Rio Tinto, the operator of Richards Bay and now 74 per cent owner, with a black empowerment group and employees owning the remaining 26 per cent. BHP was a natural seller too. Strategically speaking, it does not like non-operated interests, and Richards Bay does not offer the sort of scale-up opportunities it has elsewhere - in potash for example.

So BHP's exit from Richards Bay is no reflection on the late-cycle appeal of mineral sands, as Rio's decision to stump up for BHP's interest would tell you. Given that Rio's iron ore business will continue to overwhelm - for better or worse - whatever it does in minerals sands, investors will need to look elsewhere for their exposure to the commodity said to produce "lifestyle assets".

Mineral Deposits (ASX: MDL)

The trouble is that while there are more than a few hardy explorers and would-be developers, the choice of mineral sands producers or near-term producers on the ASX is limited.

Iluka (ILU) is the king of them all but has plunged 40 per cent in the last 12 months as the prices it has helped achieve by matching production to demand have fallen from boom-time levels. So it comes with extreme volatility.

Base Resources (BSE), a near-term producer from the Kwale project in Kenya, has just developed the same trait, crashing more than 44 per cent this week as the market is left to figure out if the Kenyan government will expropriate 35 per cent of Kwale or not.

That leaves Melbourne-based Mineral Deposits (MDL). It hasn't exactly been a rock of Gibraltar on the share price front either. But its less subdued share price retreat (down 24 per cent in the last 12 months) in the face of the China slowdown suggests it is being seen in this market as a less volatile marker for exposure to mineral sands.

After some restructuring and refocusing that is by the by, MDL owns 50 per cent of TiZir, which owns the Grande Cote mineral sands project in Senegal, and an ilmenite upgrading plant in Tyssedal, Norway. There is a sort of balance in the mining world - low political-risk assets offsetting operations in higher risk locations. It does not hurt that MDL will be on both sides of the business - miner and processor.

MDL's partner in all that is Eramet, 30 per cent state-owned by the French -- a nice partner to have when you are investing $500m in a new mining project in West Africa as the TiZir joint venture is doing with Grande Cote.

It has to be said that by its very location, Senegal comes with its challenges. But it is not as wobbly as other parts of West Africa, or parts of East Africa, as Base Resources has found out.

Grande Cote comes with an expected mine life of at least 20 years. Annual production is expected to average 85,000 tonnes of zircon (ceramics and tiles) and 575,000 tonnes of ilmenite (titanium dioxide, pigment for paints, plastics and paper).

The project is fully funded and should be in production about this time next year. There is an argument that there is nothing in the MDL share price for its Grande Cote interest. There probably won't be until it is completely de-risked and producing away merrily. Leading up to that, MDL will be in line for a re-rating.

It is a theme that can be picked up from some of the valuations on the stock by some name brokers. Credit Suisse has a target price on the stock of $7.20 a share (October 17). That is down from $8.80 a share previously to take account of weaker mineral sands prices but is still 47 per cent higher than MDL's closing price yesterday of $4.91 a share.

Goldman Sachs is in the same territory with a $7.29 a share (last Wednesday) price target for MDL, noting the key risks were further falls in mineral sands prices and increased capital expenditure and/or delays in getting Grande Cote to the starting stalls.

There is a comfort blanket in those 47 per cent-plus share price targets - the Tyssedal ilmenite upgrading plant, one that smelts ilmenite to produce a high titanium slag sold to pigment producers and a high purity pig iron sold as a by-product to iron foundries. On a 100 per cent basis, it is on track to generate $100m in gross earnings this year.

Once Grande Cote is up and running and supplying Tyssedal along side a Norwegian supply, the facility could be doubled in size by adding another furnace.

Even without the additional furnace, the TiZir joint venture will be producing 7 per cent of both global zircon and titanium feedstock supply. More to the point is that Tyssedal is one of only five such titanium slag sites in the world, which account for 40 per cent of what goes to pigment producers as feedstock. And it is the only one in Europe.

It is one seriously strategic bit of kit, particularly as Credit Suisse and others expect titanium slag prices to rise by as much as 20 per cent next year. Credit Suisse noted that with the broader economy beginning to pick up in China, mineral sand sales should recover from September-quarter levels.