South America's minerals reviewed

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Published: Friday, 20 February 2009

Economic clouds gather over South American minerals. Production cuts, divestments, and uncertainty grips South America’s industrial minerals and markets as the wave of economic gloom hits the continent. by Simon Moores, Senior Assistant Editor

 
Clouds engulf the Christ de Redeemer statue in Rio de Janeiro, Brazil, as the economic gloom descends on the continent. 
The global economic crisis has hit South America. Brazil’s huge economy has been severely impacted while Argentina’s is on the verge of worsening. These countries are the driving force behind the continent’s end markets that power industrial minerals demand.

Meanwhile, the significant mineral production base of Chile is suffering owing to the market fortunes of its biggest customers in North America, Europe and Asia where construction and automotive industries, in particular, have been ravaged.

Argentina

“We are calling for rationality, responsibility and understanding that the world is going through a very important crisis that Argentina isn’t removed from,” said Argentina’s Interior Minister Florencio Randazzo.

While not in a situation as critical as Brazil, Argentina has cause for concern; its economy is in double digit inflation (estimated 20%) and the drying up of job opportunities have been compounded with major cuts in the automobile sector.

As Randazzo stressed: “Maintaining economic activity and preserving jobs will be our biggest challenge”.

Industrial minerals opportunities look ominous. On the upside Argentina is blessed with some of the richest minerals reserves in the world and investment is still finding its way to these deposits.

Agriminerals

Despite having the mineral feedstock for fertiliser production, Argentina imports 100% of its finished product. Its main agrimineral is potash which has been the subject of recent takeover activity involving the world’s largest mining groups.

Potash

The most significant South American potash deal to come out of the global financial crisis was Rio Tinto Plc’s sale of its 2.3m. tpa Argentine potash brine operation, Potasio Rio Colorado (PRC), a Canadian potash asset, and the Corumbá iron ore project to Vale (formerly Companhia Vale do Rio Doce - CVRD) for $1,600m. (see p. 6 & 7).

As Rio Tinto seeks to reduce its mounting debt from its $36,000m. Alcan purchase, many of the group’s industrial minerals are up for grabs. Rio Tinto’s principal advisor, Nick Cobban, told IM: “This is very much to do with reducing the overall debt of Rio Tinto by $10,000m. by the end of 2009. The [potash] deposits are potentially very good, which is why we got a decent price.”

Rio Tinto has invested over $136m. in the pre-feasibility PRC project in Mendoza, central-east Argentina, since acquiring it in 2003, with the plan only a few months ago to increase the capacity at its minerals terminal at Bahia Blanca to handle 4.3m. tpa potash.

In the potash business Vale appears the most committed of the mining giants involved in agriminerals, including Rio Tinto and BHP Billiton. Vale’s potash focus is undoubtedly in South America, predominately Argentina and Brazil, while the bulk of world production is presently from Saskatchewan, Canada and the Urals, Russia.

This fall in potash interest is not surprising since market demand has declined quite significantly since September 2008 and the start of the financial crisis (see Market Monitor, Fertiliser: a growing problem, p. 24 & 25).

“Agriminerals tends to be a fashion” said Michael Freeman, potash analyst at British Sulphur Consultants, “and potash is a very expensive business”. Although brine extracting potash salts from the South American salars, as is done by Chile’s SQM SA (see Chile section), is proven to be a cheaper option to underground and pit mining operations mainly in Canada and Russia.

This is where Vale could, eventually, gain an operational cost advantage.

Potash exploration in Argentina is also pushing ahead with Marifil Mines Ltd’s activities in the Neuquen Basin, central-west Argentina.

Borates & lithium

Argentina is one of the largest borates producers owing to Rio Tinto’s 100,000 tpa Tincalyu Borax in north-west Argentina. Incidentally, this operation is up for sale as part of Rio Tinto’s desire to offload its borates and talc assets.

Processadora de Boratos Argetinaos (PBA) also mines borates (ulexite) from the north-west Argentina in Jujuy province with a processing plant at Ruta in the province.

From the same salar in north-west Salta province is FMC Corp.’s Li operations. At IM’s Lithium Supply & Markets event in Santiago, Chile last month FMC’s global commercial director, Eric Norris revealed that the group was operating at 17,000 tpa Li2CO3 capacity from is solution mine in the Salar de Hombre Muerto.

Both PBA and FMC Corp. were hit by the hike in mineral export taxes in early 2008.

The other most promising Argentine Li minerals resource is the Salar del Rincon. Admiralty Resources Pty Ltd through Rincon Lithium had developed the site to pilot plant stage before financial problems beset the metals focused parent company (see IM December ’07, p.12).

Rincon Lithium was sold last month to private equity company The Sentient Group for A$33m. with an eye on the battery market for electric vehicles. Sentient explained to IM: “...lithium based batteries may (for a period at least) be the battery technology of choice” (see IM February ’09, p.9).

At present the group is evaluating the potential of the operation; at the beginning of 2008 the plan was to begin with 17,000 Li2CO3 and 80,000 tpa potash production.

Admiralty Resources was also looking at sodium sulphate production from the Salar del Rio Grande for the Argentine and Brazilian detergent markets, however this is likely to have been scrapped when the sale of its lithium assets went through (see IM March ’08 p.77).

Small amounts of barytes are produced for oilfield drilling from Ambar Cia Minera SA’s underground mine in the Chubut province of south Argentina. The last reported production was 10,000 tpa barytes together with 150,000 tpa crude limestone for construction.

Perlite for filtration markets is mined and processed by Perfiltra SA in the Chubut province, while Piedra Grande SAMICA produces sodium feldspar from San Lius surface mine.

Bolivia

Bolivia has become somewhat protective of its natural resources in recent years, particularly under the guidance of President Evo Morales since 2006. The country believes its mining industry has been taken advantage of in the past thus has widely turned to nationalisation of the industry.

However, this has resulted in a skilled and experience workforce – introduced through foreign companies – leaving the country, and for this reason its gas industry has suffered (see Comment p.23).

Bolivia is now seeking to develop the last great untapped Li resource, the Salar del Uyuni in the country’s south which was described by government mining agency, Corporación Minera de Bolivia (COMIBOL) as “the most important industrial mineral project in the history”.

For a comprehensive idea of Uyuni’s reserves more drilling has to take place. On the basis of available information the salar contains an average Li concentration of 500 ppm.

Over the next two years COMIBOL is seeking to establish 20-30,000 tpa Li2CO3, 400,000 potassium and sulphate chloride, 20,000 tpa boric acid, and magnesium chloride production for domestic road de-icing.

A 40 tpm Li2CO3 pilot plant is presently being constructed at the salar to prove the product quality and deposit’s economic viability. The plant will cost $6m. with a full scale plant expected to cost $250-300m. which has been guaranteed by the Bolivian government.

There are some challenges to the Uyuni project such as brine chemistry, logistics, and environmental impact which were to be discussed at IM’s Lithium Supply & Markets 2009 in Chile in January. However these presentations were cancelled at the last minute by President Morales for unspecified reasons.

Brazil

Brazil finds itself in one of the most dire situations of recent times, highlighted by the fact it shed the most jobs in nearly ten years, 654,946 – higher than predicted by President Luiz Inacio Lula da Silva. Even more stark, the biggest cuts came in construction and automobiles, some of industrial minerals biggest markets.

One of the major impacts on Brazil’s industrial minerals industry is not just the demand fall from end markets, but the fall in revenue owing to the exchange rate of the Brazilian reais (R$) against the US dollar, particularly as most companies trade in the US dollar.

Kaolin

Brazil is the big producer of kaolin in South America accounting for 91% the continent’s production and 15% of global output.

French industrial minerals giant, Imerys SA, and the world’s second largest mining group, Vale are the main contributors to Brazilian kaolin output (mainly paper coating and filler grades) which reached 3.5m. tonnes in 2008.

Imerys’ Rio Capim Caulim plant has a capacity 1.6m. tonnes and is the largest single kaolin plant in the world over 90% is exported into Europe, Asia and North America.

Imerys’ European logistical ties were strengthened in 2008 by establishing a 600,000 tpa kaolin port terminal in Antwerp with Belgian shipping group Sea-Invest (see IM December ’08, p.24).

Vale’s kaolin production was 1.05m. tonnes in 2008, down from 1.345m. in 2007, the group even went as far as putting its kaolin businesses up for sale in 2007 but placing out owing to lack of interest.

At the end of last year, Vale cut production at its two Brazilian kaolin sites. Pará Pigmentos SA (PPSA) output has been reduced by 17.5% (639,000 tpa to 528,000 tpa), and at its CADAM SA operation has been cut back by 15.8% (from 714,000 tpa to 602,000 tpa) (see IM December ’08, p.11).

South American kaolin output 2008 (‘000 tonnes) 
 
Source: Ian Wilson Consulting 
Agriminerals

Brazil’s fertiliser market has grown by over 50% in the last ten years resulting in a huge fertiliser production base and demand for feedstock minerals production. Domestic fertiliser consumption accounts for 37% of production (9m. tpa).

By 2018 Brazil is expected to import more meat than the USA, Canada, Australia, and Argentina thus its need for grain will be colossal, an astonishing prospect driving its agriminerals sector.

The fertiliser sector has suffered from the appreciation of the Brazilian reais against the US dollar, mentioned earlier, which hiked phosphate fertiliser prices impacting domestic farmers hard.

Potash

Brazil’s potash capacity is close to 450,000 tonnes, a small figure in comparison to Canada and Russia. The largest country on the continent is on every ones lips however as it hosts the world’s greatest untapped potential in the Amazon Basin.

The Amazon Basin has been extensively explored by petroleum and natural gas companies since the 1960s and now junior potash companies such as Amazon Potash Co. are using these data sets for potash exploration.

Actual production from this area is expected in the next two to four years and despite the recent downturn in the potash market – a correction of sky high fertiliser prices in 2008 sparked by the economic crisis – medium and long term demand is set to be strong as the mineral has no natural or synthetic substitutes.

The most recent development on the Brazilian potash scene was Rio Tinto Plc’s sale of its undeveloped Argentine asset to Vale for $850m. Vale produces 607,000 tpa potash from its Taquari-Vassouras mine in Brazil and the new acquisition adds to the group’s South America potash dominance

Potash production at Vale’s Taquari-Vassouras mine fell from 671,000 tonnes in 2007 to 607,000 tonnes in 2008, representing a 9.6% decrease. Production fell 40.9% from Q3 2008 to Q4 2008 when Vale stopped potash production altogether in November 2008.

South American phosphate rock output 2008/09 (‘000 tonnes) 
Source: Industry estimates
Phosphate rock

Bunge Fertilizantes, part of US group Bunge Ltd, is South America’s largest fertiliser company and owns two phosphate rock mines and processing plants in Brazil.

The group’s subsidiary’s Fertilizantes Serrana à Manah at Araxà in Minas Geras state, and Cajati near Jacupiranga in São Paulo state mine are major contributors to Bunge’s phosphate rock output of 1.4m. tpa.

The Araxà operation supplies two single superphosphate (SSP) fertiliser plants adjacent to the mine and the Cubatão, Gurarà, and Uberaba SSP plants.

A total of five SSP fertiliser operations produce 2.2m. tpa, a third of Bunge’s worldwide production. The phosphate rock mines also feed the group’s 600,000 tpa Diammonium Phosphate (DAP), MAP, and TSP production.

In an attempt to mitigate against the exchange rate damages, Bungay formed a j-v with Morocco’s Office Chérifien des Phosphates (OCP) for a phosphoric acid and phosphate fertiliser. In turn the OCP has boosted phosphate rock plans by opening four new mines to produce near 50m. tonnes by 2016 from today’s level of 30m. (see IM February ’08, p.6).

OCP highlighted Brazil as the main country targeted for growth.

Fertilisantes Fosfatados SA, a phosphate focused miner and processer has the capacity to produced 4.5m. tonnes of raw material with an output of 1.6-2m. tonnes (35.5% P2O5) for acid and 500,000 tpa SSP production.

South American lithium carbonate output 2008/09 (tonnes) 
 
Magnesite, graphite

Following the sale of Brazil’s leading magnesite and refractories producer, Magnesita Refratários SA in 2007 to South America private equity group, GP Investments Ltd, the group announced plans to triple dead burned magnesite (DBM) production, which it has a capacity of 320,000 tpa, and refractories production (590,000 tpa capacity).

However at the end of last year GP announced a depreciation of $124m. in the fair market value of Magnesita, which it purchased for 38.6% of the company’s capital for R$1,240m.($641m. in 2007).

Most of the company’s refractory products are utilised in Brazil’s steel industry which, like the world over, has suffered significantly in the last six months. Brazil’s steel output is down over 45% on this time last year.

Magnesita also owns magnesite and talc mines in the Bahia area north-east Brazil and also has chromite, dolomite, kyanite, refractory clays, and pyrophyllite reserves.

Nacionale de Grafite, one of the world’s leading natural graphite producers, is ready to launch a new grade of spherical grade for the battery market, aimed at the lithium-ion design.

The company, which mines flake deposits in Minas Gerais, is expanding its portfolio into the battery market following the growing interest in the automobile industry as it considers electrification of the vehicle.

Nacionale de Grafite supplies graphite products for a number of markets including refractories and brake linings and pads. These markets, owing to their intrinsic link to steel and traditional automobile sectors have suffered considerably since the global economic downturn began in September 2008.

Other minerals

Sao Joao del Rei based Companhia Industrial Fluminense (CIF), part of AMG Advanced Metallurgical Group NV, revealed to IM it is operating at 90% of its 11,000 tpm capacity production for its Li-feldspar product and 100% capacity for its 20 tpm tantalum concentrate.

CIF are looking into a number of expansion projects amidst the economic gloom. Marcelo Suster of sales general manager at CIF told IM: “[We are looking] to increase our mining products output, we are doubling the current capacity, starting next month, and [installing] a flotation unit to separate the spodumene from the feldspar/pegmatite, to produce about 3,000 tpm spodumene in 2011.”

Mining for gypsum is occurring in the Rio Grande area of Brazil for the construction industry, while the country’s carbon black production, predominately for automobile tyre market, is around 3m. tonnes.

Industrias Nucleares do Brazil SA (INB) mines minsands (ilmenite, monazite, rutile, and zircon) from the Buena and Delta, Paribia near Rio de Janeiro.

Chile

Chile is an exporter of industrial minerals. The country has a population of little over 16m. with small domestic markets, glass and ceramics, in particular, suffering in the global economic recession.

Thus Chile’s primary markets are in South East Asia – particularly China with which it has a free trade agreement – and North America.

With a history of nitrate production, Chile added to its industrial minerals portfolio in the mid-1980s with the emergence of Sociedad Chilena del Litio (SCL) which extracted from the Salar de Atacama brines and Quiborax mining borates from the Salar de Surire in the north of Chile.

Salar de Atacama

The majority of Chile’s rich mining history is from copper, but over the past decade the emergence of its non-metallic minerals industry, namely potash, common salt, Li, iodine and nitrates, now have the world’s attention.

The present industrial mineral wealth of Chile lies in the calcihe ore deposits and salars (salt lakes/pans) north of the country.

Both sources of minerals have given Chile world leading positions in the production of Li2CO3 (capacity 69,000 tpa, presently operating at around 75%), iodine (20,000 tpa capacity, production around 15,000 tpa) and potassium nitrate 650,000 tpa.

Production of potash and Li from the Salar de Atacama began in 1984 through Sociedad Chilena del Litio (SCL), a j-v between Foote Mineral Co. (55%) and the Chilean government mining development agency, CORFO (45%). SCL later became part of German chemicals group, Chemetall GmbH.

The industry received a significant boost when SQM SA (then Soquimich) began production of 300,000 tpa muriate of potash (MOP) in 1995 from the brines of the Atacama for use in potassium nitrate in Coya Sur.

Over the next two years SQM upped its capacity to produce and extended its portfolio of minerals into sulphate of potash (250,000 tpa), boric acid (16,000 tpa).

In 1997, SQM began extracting Li from the brines via a simple solar evaporation process to produce lithium carbonate (Li2CO3) and following a successful introduction into mainly the ceramics, glass, and pharmaceutical market, it expanded to 30,000 tpa over the next five years.

The group also increased its MOP production capacity in this period to 650,000 tpa in order to meet higher potassium nitrate needs for the growing fertiliser industry and began producing lithium hydroxide (6,000 tpa capacity) in 2005.

SQM and Chemetall’s production facilities are located in the Salar del Carmen, some 270km from the Atacama in the Salar del Carmen on the outskirts of Antofagasta. This is where the Li concentrated brine (6%) is trucked to before exiting the facility as Li2CO3 and lithium hydroxide, with a by-product of boric acid (65,000 tpa).

Both companies have expanded their Li2CO3 capacity over last year: SQM increased to 42,000 tpa and Chemetall to 27,000 tpa. However owing to the present global financial situation impacting all user markets, both companies are operating under capacity at present, though to be around 75%.

South American borates output 2008/09 (‘000 tonnes) 
 
Source: Industry estimates 
Borates

Along with the USA and Turkey, Chile’s is one of the world’s leading borates producers. The country’s total borates production is around 500,000 tpa behind that of the USA 670,000 tpa (through Rio Tinto Borax) and Turkey 2.2m. tpa (predominately through government run Eti Bor).

Borates are mined in Region I and II through Quiborax mining from the Salar de Surire and processing plant 69km located from Arica port.

Quiborax uses the borates salts extracted from the Salar de Surire’s surface to feed its 50,000 tpa boric acid production. The company estimates that the salar contains around 1,500m. tonnes of ulexite, equating to 30m. tonnes B2O3.

Quiborax is constructing a fourth boric acid unit increasing its capacity to around 70,000 tpa. The $20m. investment into the automated plant will supply fertiliser product for the USA, Turkey, and Russia.

Agroquimica Ltda produces around 20,000 tpa of agricultural products based on these borates.

Iodine

Chile is the biggest contributor of iodine to the global market (close to 60%). SQM SA is the country’s leading producer with an 11,000 tpa capacity, but is believed to be operating around 9,000 tpa at present.

Cosayach (Compania Salitre y Yodo de Chile) is the country’s second largest iodine producer with a 7,000 tpa capacity.

ACF Minera is the third Chilean iodine producer with an output of 1,800 tpa at Lagunas, Region I. They have a new project, including iodine and nitrates, at Algorta, Region II, which ultimately will replace the operation at Lagunas.

Atacama Minerals Corp. mines 1,000 tpa iodine from an iodine, sulphate and nitrate deposit at Aguas Blancas in Atacama Desert.

The Canadian company was planning to expand the operation to 1,500 tpa iodine and create a 70,000 tpa nitrate fertiliser plant at the mine site in Agua Blancas, however following the global economic recession, these projects have been suspended.

Since beginning operations in March 2005 Atacama Minerals had a steady iodine output of 150-100 tonnes/quarter, despite hitting a zone of lower mineralisation between the end of 2006 and beginning of 2007.

The company is also rethinking its development strategy for the Salvador Potash Project in Brazil (see Brazil, Potash section).

South American salt output 2008/09 (‘000 tonnes) 
 
Note: Includes both rock and brine salt. Source: Industry estimates
Salt

Despite having large salt resources and excess product, as a by-product of brine extraction, Chile’s sales of salt are relatively low considering the main market for the salt is road de-icing where the markets of Canada, parts of North America and north Asia are too distant.

Chile has an salt excess particularly at SQM’s operations in the Salar de Atacama where it stocks sodium chloride next to the evaporation ponds.

The market conditions are not right to make shipping or wasting the salt viable.

Chile’s leading producer, Salinas de Punta de Lobos SA (SPL), has a capacity of 7m. tpa rock salt.

The mine is located south of Iquique, Region I in the country’s north where the raw material undergoes primary processing – crushing and grinding. SPL also has beneficiation and packaging operations in Region V, VIII, and X. It operates a private port at Patillos which has a shipping capacity of 20,000 tpa.

Other minerals

The latest available production figures for Chile’s calcium carbonate sector shows the output topping 7m. tonnes. The Metropolitana de Santiago region was the leading producing area (2.24m. tonnes) while Region II was second place (1.39m. tonnes).

White Mountain Titanium Corp. (WMTC) is pushing ahead with the development the Cerro Blanco rutile and feldspar deposit in of Chile’s region III. The source has the potential to supply a rutile concentrate with 96.5% TiO2 for which WMTC is eyeing the pigment markets, however it is also exploring the potential to produce titanium metal for applications in aircraft and high tech markets.

WMTC is pushing ahead with development and indeed looking to take advantage where other miners are making cutbacks.

“We are looking to advance our project as quickly as possible in the recession”, said WMTC president and chief executive office Mike Kurtanjek to IM, “We are expecting a deep recession with no real recovery in the mining sector for another 18 months”

“I want to make sure WMTC is ready to produce before the when the economy and markets pick up.” Kurtanjek.

Cerro Blanco could also represent a low cost sodium feldspar source for ceramics and glass producers. The feldspar by-product is substantial but not WMTC’s focus. Kurtanjek explained: “If I could sell the sodium feldspar at a third of the market price, we could virtually half our operating costs.”

Chile’s market for feldspar in ceramics and glass has somewhat waned in recent years and the country presently produces under 7,000 tpa all grades for small scale production.

In such a tectonically active country the potential to mine sulphur from volcanic sources is ever present with reserves into the hundreds of millions of tonnes for an ore containing between 30-50% S. These sources are located along the Andes mountain belt which covers much of the country.

Guyana

The are fresh doubts over Bosai Minerals Group Co. Ltd and United Co. RUSAL’s alumina investment plans in Guyana following the worsening economic crisis. The two companies were to establish a 1m. tpa alumina smelter, but as problems at RUSAL worsen the situation remains under constant review.

An expansion of Bosai’s calcined bauxite operations from 300,000 tpa to 450,000 tpa was also planned over the next two years as part of the company’s future plans (see IM January ’09, p.19).

Time for change

South America is feeling the economic heat like the rest of the world. Major industrial sectors – construction (steel, cement, glass), automobiles (steel, aluminium, glass, plastics, foundry) – have made significant production cuts on the continent impacting the industrial minerals markets.

Brazil, South America’s most developed economy, has suffered more than most, however, with its close business ties to North America and Europe this comes as little surprise.

Chile’s economy is to show signs of significant impact, however, as an exporter to battered markets the country is suffering. As CORFO explained to IM the country is seeking to change its strategy on minerals: “The country’s plan is to increase the value of its industrial minerals rather than just export [therefore] we are looking at how to introduce the technology”.

There appears to be an emerging trend in South America, particularly Chile, whereby the economic situation has forced mining industry support (technological, economical, engineering­) to diversify in order to survive and move away from the mining sector. Thus when the markets see an upturn there could be a shortage.

Mergers are also expected to be a common theme between companies as the need for efficiency to survive sweeps the global industry.

Despite the present gloom, many believe that when the upturn comes South America will resume business. The problem is that in this unprecedented situation nobody can predict when.

Acknowledgements: Leading Chilean minerals consultant, Pedro Pavlovic, for insight into the country’s industry.