Demand for titanium dioxide feedstock to grow: MacquarieSource:...

Demand for titanium dioxide feedstock to grow: Macquarie
Source: Egoli

Macquarie Research Equities (MRE) recently attended a presentation at the Richards Bay Minerals (RBM) TiO2 feedstock mining and smelting facility in South Africa – a 50:50 Rio Tinto and BHP Billiton joint venture. RBM maintains a dominant market position controlling ~33% of global TiO2 feedstock supply. Despite its world class and low cost status, RBM is only a modest contributor to the group earnings of both Rio Tinto and BHP Billiton (EBIT of ~US$200mpa (100% basis)).

Management reiterated positive market comments made at the recent annual Rio Tinto investor briefing.

Specifically, management anticipates growth of 3.2% pa for TiO2 pigment demand for the remainder of this decade, supplemented by strong growth in Chinese demand of 10.9% pa.

As such, management expects continued tightness in the TiO2 feedstock market in the medium term. In addition, management suggested development delays in the Murray Basin should precipitate an extended period of tightness in the zircon markets (at least until end 2007).

100% of product is forward sold

Pleasingly, the RBM smelter is now consistently running at nameplate capacity rates (1.03mtpa). Furthermore, RBM has reportedly sold forward 100% of production with four years to run on existing five-year contracts (prices are formulated on a spot pricing basis). Annual cost savings of 4-5% pa will further support profitability.

Incremental, high return growth

Looking ahead, RBM will deliver incremental growth in TiO2 feedstock volumes (+50ktpa to 1.08mtpa) by executing additional, high return, debottlenecking initiatives. MSP Ilmenite inventories that currently approximate 18 months of production will support that increase in smelter output in the short term while filling a mine-supply gap in the longer term (2014). In contrast, HMC inventories approximate a limited ~2-weeks of production and zircon and rutile sales are likely to remain constrained at 260ktpa and 110ktpa respectively.

The current revenue split approximates 49% TiO2 feedstock, 5% zircon, 20% pig iron and 6% rutile.