substantial shareholder increases stake , page-2

Barry Fitzgerald

Worst is over for mineral sands plays

by: Barry Fitzgerald
From: The Australian
May 28, 2013 12:00AM

A BUNCH of factors suggests prospects are improving for mineral sands producers, and by extension the developers/explorers.

A combination of producer restraint, low consumer inventories and reasonable optimism on the US and the Chinese economies all point to better days ahead.

Right now, though, all that is needed is a good painting season in the US. If enough people get up the ladders to give their houses a lick of paint, it could be happy days again for the white pigment (paint, plastics and paper) end of business (ilmenite, rutile and leucoxene).

Recovery for the zircon end of the business (ceramics, refractories and chemicals) is expected to be slower and more volume driven than price driven. Still, optimism is returning. History shows that when the mineral sands market does rebound, it can do so in a bullwhip sort of fashion, as the biggest of the dedicated mineral sands producers, Iluka, likes to remind everybody.

There are now more than a half a dozen decent mineral sand plays on the ASX, but today's interest is in the grandly named World Titanium Resources (WTR). It has less than 20 days to go in a 90-day countdown on a company-making deal with Lomon, a privately owned Chinese pigment and phosphate producer.

WTR's deal with the Chinese is on WTR's world-class Ranobe ilmenite/ rutile project in Madagascar. It envisages Lomon financing a $US300 million ($312m) development of a long-life project producing 800,000 tonnes of ilmenite and 88,000 tonnes of zircon-rich concentrate annually, leaving WTR with a free-carried 50 per cent interest.

Ahead of the Lomon deal, WTR was working on a standalone project that was half the size and for which it would have had to find $US100m in project debt and $US126m in development equity. That was going to be a challenge.

The Lomon deal removes that uncertainty. But only to a point. Lomon's entry is conditional on a 90-day due-diligence period, now down to less than 20 days. WTR shot from 16.5c to a high of 27c a share when the deal was announced in mid-March. It has since settled back at 23.5c for a market capitalisation of $75m.

That retreat reflects the deep suspicion this market now places on any deal involving Chinese interests, given the fiascos involving Chinese interests at Sundance Resources, Discovery Metals, Westside Resources and others.

It will be known soon enough if Lomon will be following through. What is known is that Lomon has growth ambitions, and that it is a low-cost producer of pigment, due in part to the co-location of that business with its phosphate fertiliser business allowing what would otherwise be waste streams from one to be utilised in the processing requirements of the other.

Should Lomon follow through on this deal, WTR won't be at these levels for long.

A 2012 study pointed to an ungeared $US310m net present value for the smaller version of Ranobe.

But until it is known if Lomon will be proceeding there can be no certainty WTR will in fact be off to the races with the rest of its mineral sands peers. Stressful times for the shareholders. That's for sure.

http://www.theaustralian.com.au/business/opinion/worst-is-over-for-mineral-sands-plays/story-fnciil7d-1226651662126