Vermiculite’s green shoots

By Jack Elliott
Published: Monday, 23 July 2012

The vermiculite industry has just had one of the most volatile years in history. Jack Elliott discusses new market entrants and asks – what next?

 
 Brasil Minerios’ Sao Lu’s vermiculite
mine in Goania, Brazil
2011 marked one of the greatest years of change the vermiculite industry has ever seen. What had traditionally been a small and relatively stable market, suddenly transformed into one of tremendous interest for a number of developers. Spurred by news that production from South Africa’s Palabora - the world’s leading producer - was diminishing, and eager to fill the gap created by China’s Xinlong Vermiculite Co., Ltd when it (temporarily) shut its doors, developers outlined production plans that would have seen the current global production, of approximately 580,000 tpa (USGS - 2011), almost double. As Graham Ellicott, chairman of The Vermiculite Association, told IM at the time: “There’s more going on in the industry now than there has been in the last 30 years.”

The proof though, will be in the pudding, as China’s Xinlong is now back up and running, and Palabora has suggested that its plans could be to increase production, rather than curtail it. Whether producers and developers will be able to reach their production targets, will all depend on demand from buyers whose confidence has been rattled by the aforementioned market instability.

Vermiculite is one of three ultralightweight aggregates (perlite, vermiculite and pumice), accounting for 0.6m tonnes of the world’s 14.5m tonnes consumption in 2009, where perlite took 3.5m tonnes, and pumice 10.3m (Roskill Information Services). In 2009, the mineral’s main end markets were in construction, insulation and horticulture, where vermiculite production was concentrated in South Africa (41% of world output in 2009), the US (21%) and China (21%). The scene now though, is changing, and the global output breakdown could look quite different in the next couple of years, particularly in Brazil, where new entrant Brasil Minerios is growing fast.

Minerios emerges

Brasil Minerios Ltd (Minerios) produced nearly 70,000 tonnes of vermiculite in 2012, and has earmarked an ambitious expansion plan, that, if successful, will see its production rise to 200,000 tpa by 2016.

The company is producing vermiculite at its S‹o Lu’s De Montes Belos mine near Goi‰nia in central Brazil, and holds the mining rights to the world’s largest undeveloped known vermiculite deposits, in Catal‹o, Goi‡s state. It is hoping to start up its Catal‹o mine near the country’s capital, Bras’lia, in 2013.

Minerios produced 35,000 tonnes vermiculite at its S‹o Luis De Montes Belos mine in 2010, and topped its estimates for 2011 production, of 55,000 tonnes, by 15,000 tonnes.

“Next year, we are looking to grow to 100,000 tonnes, exactly as we expected,” Wilton Machado, CEO, told IM.

While ambitious, it seems that Minerios’ plans to reach its desired production of 200,000 tpa might not be unrealistic, at least in terms of the operation’s potential. Market participants have lauded the operation, describing it as unique, and praising its efficiency.

“Wilton [Machado] has done a fantastic job with Brasil Minerios. His use of a hybrid wash screen followed by dry winnower which produces an exceptionally clean product at reduced production costs, is unique in the industry,” Eric Moeller, head of the Nanoparticle Consultancy, told IM.

Moeller added though, that the company has limited coarser sizes - potentially a key drawback in a market where coarse grades are king.

Of its current production, Minerios exports 60% and sells 40% domestically. Of the exports, 40% are being sold into Europe, 40% into North America, and 20% into the Middle East. The company exfoliates between 30-40% of its material.

John Addison, managing director of Nanoparticle Consultancy, added to IM: “It’s a good system, it seems to be working very well. They’re going into some new areas of the mine, they’ve left the old area and opened a new pit. They’ve got good reserves there, and more importantly, there are few signs of fibrous minerals in that area.”

Although it seems that in terms of infrastructure at the mine, the company is well positioned to progress, logistics could yet prove a challenge. As Jose Luiz Fernandes, company spokesperson explained to IM: “Roads are a problem in Brazil - we use a lot of trucks. Barges and rail systems are also underdeveloped in Brazil.”

 
 Vermiculite from Palabora


“The ports are also a problem. However, as the country imports and exports more, the infrastructure is fast-improving.”

While Minerios’ infrastructure and Brazil’s sound and growing economy look like they will bode well for the company, its ability to reach full production will hinge not only on the difficult-to-predict demand, but also on the fortunes of established and emerging competitors, many of which have been somewhat enigmatic in recent months.

Gulf Industrials’ coarse advantage

The situation for Ugandan miner Gulf Industrials is quite the inverse to Palabora. In terms of its mineral composition, the deposit of Ugandan miner Gulf Industrials is perhaps one of the most prospective in the industry. 21% of the company’s deposit is constituted of large grades (+5.60mm) of vermiculite, and 30% is of medium grade (+2.00mm). This could prove to be an invaluable asset to the company, as, generally speaking, the coarser the vermiculite grade, the higher the price. As the company’s CEO, Mark Arnesen, observed to IM: “You can’t turn micron into large, but you can turn large into micron.”

A deficit of coarse grades globally has been one of the major contributors to soaring vermiculite prices in 2011. Palabora conceded that it was struggling to keep up with global demand for coarser grades, tightening supply further, and a major gap emerged for a developer to plug the market.

In June last year, Gulf targeted the production of 130,000 tpa vermiculite from its Ugandan deposit by 2013. Such a level would require a hitch-free and aggressive expansion plan, particularly as the company has not yet reached its name plate capacity of 30,000 tpa, which it initially forecast to have online by September 2011.

Arnesen told IM: “We want to get production up to our name plate capacity of 30,000 tonnes. There are certain things we need to complete first though. We hope to have this capacity online by the end of the second calendar quarter [of 2012].

“Another objective is to complete a feasibility study to bring production up to 80,000 tpa by the addition of a 50,000 tpa plant. We hope to complete and present this study by the end of June. This year is crucial for those things”.

 
 Green grass growing vermiculite


Challenges

A landlocked country, one of the principal challenges of mining in Uganda will be the logistics of getting the product away from the mine. Gulf plans to integrate both rail and road into its logistics plan, but for now, it is relying on roads to transport its product.

“At present, all of our product is being transported by truck, and the roads need a lot of repair,” Arnesen revealed.

“Crucially though, the railway is being upgraded. New financing has been raised by RVR, and they will be keen to have the line operating as soon possible.”

Arnesen explained that other challenges for the company will be to negotiate a Mining Agreement with the Ugandan government, as well as training locals to work at the mine, which has until now been a “small issue.”

“We’ve also had issues with the electricity grid, so we’re looking to install a stand-by generator, which, although more expensive to run will provide improved reliability.”

Coarse grades’ pricing power

While developing suitable infrastructure to support the company’s ambitious expansion plans will undoubtedly be a challenge, evidence has already emerged that if and when the company gets significant production online, it will continue to be in pole-position to command premium prices for its vermiculite.

In 2011, vermiculite prices surged from $230-450/tonne (South Africa, bulk, FOB Antwerp), to a range of $400-850/tonne. This unprecedented rise was driven by a number of factors, but the consensus was that a scarcity of short grades was a key contributor.

One consultant told IM: “Gulf would be in a good position to get premium prices for the large grades, because there is a general undersupply worldwide.”

Nanoparticle’s Moeller added: “Coarse grades remain constrained worldwide, which is causing the pricing to continue to rise for those sizes”.

Gulf hiked its vermiculite prices by an average of 12% for the period between 1 March 2012 and 28 February 2013. This itself is indicative of the pricing power of coarser grades - 12% is quite a substantial rise in a market for which prices have been relatively flat since last year’s surge.

Palabora production falls in 2011

South African miner Palabora’s concession last year that the company is feeling the squeeze as its deposit at its Limpopo mine diminishes, sent ripples through the industry. Palabora has for years been the world’s largest vermiculite producer, so any news that it might lose its crown has spurred others to lay their claims as heir to the throne. Machado of Minerios has said that the Brazilian project is: “The natural replacement for Palabora.”

Palabora’s vermiculite sales fell year-on-year, from 2009-2010, from 183,000 tonnes to 179,000 tonnes. Sales continued to decline in 2011, falling another 9%. The company sold 163,00 tonnes in 2011, which it attributed to: “operational maintenance performed to improve safety, the impact of wet weather on ore feed in the first quarter and the impact of a two-and-a-half week furnace refractory maintenance plan, lower ore feed grades and excessive ore moisture due to wet weather in the fourth quarter.”

In October last year Rio Tinto and Anglo American, which held a 57.7% and 16.8% stake in the company respectively, decided to sell their stakes in Palabora.

Chief executive of Rio Tinto Copper, Andrew Harding, said: “Rio Tinto is no longer the natural owner of Palabora due to the limited opportunity to significantly expand copper mining.”

Since the announcement, speculation has been rife that French conglomerate Imerys would be a perfect-fit suitor for the operation. One vermiculite producer told IM: “The only possible buyers would be Imerys, which owns a mine in Zimbabwe, or Greek perlite miners S&B.”

However, as yet, no such approach has been made, so the future of the deposit remains to be seen.

Palabora fights back

Despite its declining vermiculite production in recent years, Palabora has suggested that its plan may actually be to drastically increase its production in the future, rather than see it slip further.

Herbert Hanke, Palabora’s general manager of marketing, sales and logistics, told IM in January this year: “We’re currently undertaking a study which considers the production of 300-400,000 tpa vermiculite. From some simple drilling, we’ve seen that our possible reserves could far exceed our proven 24-year mine life, at 200,000 tpa”.

Since that time, market sources have confirmed the eligibility of such an expansion, demonstrating that there is the potential for new life in the project.

“Palabora has got untouched areas they could work in to. Also, they’ve got the right to the material from the phosphate tailings. [South African phosphate producer] Foskor has the rights to any of the phosphates in the vermiculite deposit, and vice versa: Palabora has the rights to any vermiculite in the phosphate works,” vermiculite consultant Addison told IM.

“I think Palabora could probably up their production, but they’re going to need to put in more plant infrastructure.”

China’s Xinlong back in business

As if all the aforementioned expansion plans weren’t enough to rejuvenate the vermiculite market, China’s Xinjiang Weili Xinlong Vermiculite Co. has set out its intentions to increase its vermiculite production to as much as 150,000 tonnes in 2012.

According to Melissa Zhang, commercial director of Paris-based CMMP, which markets Xinlong’s products, the company produced 80,000 tonnes in 2011.

The supply influx could make competition very stiff indeed in the global market, and goes a long way to show just how much the shape of the market has changed in the past year or so.

Fingers crossed on fine grade demand

While coarser grades have ruled the roost in commanding high prices for vermiculite in recent months, producers have been holding out for a resurgence in demand for finer grades. Xinlong’s closure in 2010 shook buyer confidence, with some end markets turning away from vermiculite and on to other materials - such as perlite and pumice - to integrate into their products.

Now though, increased fine grade utilisation in end use products for markets such as insulation and brake pads, has been tipped to strengthen demand.

“Vermiculite demand will increase. From talking to various industrial users, I’ve learnt that they will increase their tonnage substantially. Fire proofing is one of the key drivers,” said Addison.

“End users need to guarantee quality and supply of material. This has been difficult in recent years, given Xinlong’s closure, however, now supply is looking to become more stable it is possible that investors will develop new product lines that utilise vermiculite,” said Addisson.

Micron grades of vermiculite can be used to absorb mine water, as well function as an effective replacement for zeolites in iron exchange columns.

“If new products can be developed that utilise micron, their value will increase exponentially. If I were younger, I’d be commissioning research in the development of these products. Relatively little research has been done in vermiculite utilisation,” said Addison.

A spokesperson for vermiculite producer Brasil Minerios, told IM: “We have clients that are changing day-by-day. End markets are moving to finer grades, people are finding innovative ways to utilise cheaper grades.”

Ned Gumble, of US producer Virginia Vermiculite, which produces between 40-45,000 tpa vermiculite, concurred that increased fine grade utilisation was a likely trend:

He told IM: “We have been hearing that there has been some increased utilisation of finer grades recently. We have not yet seen any appreciable change but remain optimistic.”

Machado of Minerios added: “Gypsum boards that use vermiculite are emerging as a new market. Their use will be more intensive. This could become an area of very strong demand for vermiculite. it will be the finer sizes of vermiculite used in this area.”

Construction hits demand

A sharp decline in the US and European construction sectors have had an inevitable knock-on effect on vermiculite demand.

Alison Saxby, of Roskill Information Services, told IM: “The weak construction sector is impacting demand, particularly in Europe and North America. This has also been coupled with a resistance to higher prices, especially for coarse grades which is reducing demand.”

“In Asia and Oceania the largest application for vermiculite is in now in horticulture. The region now accounts for around one third of world vermiculite consumption, which is where most growth in demand will be found this year and next.”

Virginia’s Gumble concurred: “While demand for our grades has been relatively stable, the construction products related markets have much room for improvement.”

Price forecasts mixed

While producers and analysts have shown minor discrepancies in conservatism over price forecasts, the consensus seems to be that, for now, and after their unprecedented surge in 2011, prices have levelled out.

As one producer forecast to IM: “I expect price stability. I think demand has met a point of equilibrium. I don’t expect any surprises with price rises.”

Another, though, forecast the overcapacity could exert a downwards pressure on prices. The producer told IM: “Prices are a moving target, given inflationary pressures too. Certainly what’s happening in the oil world is reflective of pricing pressures on products here, particularly operations such as ours which are wet processed.”

“The extra supply has got to put a downward pressure on pricing at some point in time. I think the other factor in there is transportation costs, especially with fuel prices where they are today. That’s going to significantly impact on all the producers.”

Another market analyst concurred that new supply will keep prices in check. The source said: “Price rises in 2012 will probably be curbed by a combination of increasing output from China, Uganda and Brazil and the economic situation in Europe. Prices for expanded grades will continue to be affected by high energy costs.”

Quality control adds pressure

Quality control measures are expected to increase producers’ costs. Fibrous minerals have been (often notoriously) associated with vermiculite extraction, and, following the widely-reported asbestos contamination at WR Grace’s now 20-year-closed vermiculite mine, producers are implementing more stringent measures than ever to ensure a clean, uncontaminated product.

One source explained to IM: “Quality control measures will ultimately affect prices. Buyers are becoming more particular about what they buy. There are issues about organic chemicals in vermiculite such as dioxins and arsenic. If someone says that a certain vermiculite product has five parts per million arsenic, then for whatever reason other people may find that alarming.”

“That said, I’m not sure prices are going to get very much higher in the future because various producers are increasing their production. Some have not shifted their price significantly over the last year or so. They are taking the longer view; if they have a large, loyal customer base they don’t want to upset them by drastically increasing prices.”

Market in the balance

Despite a highly volatile, and in many cases highly optimistic, year for vermiculite in 2011, renewed economic uncertainty has reined in expectations of a sure-fire explosion in demand. In the coming months, it will be a watch-and-wait market. It seems impossible that there will sufficient demand to support the combined new production earmarked by all producers. Overcapacity is a very real threat to the market, where demand is already quite weak in some major sectors (such as construction). If all the above-discussed plans were to come to fruition, more than 500,000 tpa vermiculite could be injected into the market. A dose which, for at least some producers, could prove lethal.