Projects in the pipeline: Green hills of Africa not as important as its sandy beaches

The titanium dioxide (TiO₂) feedstock industry is dominated by three main producers - Rio Tinto, Iluka Resources and Tronox - which account for the majority of global supply. Pigment producers rely on these companies but the recent price rises in the market have encouraged a wide range of juniors, which are now waiting in the wings.

As with all industries, some junior miners may never enter production while some could become major new suppliers like success story Kenmare Resources Plc.

But the question of which projects are coming online in 2013 and what products might they supply onto the open market is an important one, as such products may take the place of existing supply that has been restricted through recent moves by Rio Tinto and Iluka Resources.

As such, many end-users will be anxiously watching the progress of the juniors in this industry and they will see that 2013 will be Africa’s story.

Base Resources Ltd, like many mineral sands juniors, is based in Australia. It is exploring the Kwale project in Kenya and is looking to be first new TiO₂ feedstock supplier to reach the market in 2013.

“The project remains on schedule for completion on 24 August 2013,” Base Resources told IM.

The Kwale project is one that has been around for years and has somewhat of a chequered past under previous owner Tiomin, which ran into roadblock after roadblock. The company struggled in particular with the Kenyan government with what CEO at the time Robert Jackson termed as “bureaucracy and corruption”. As well as this, seven local farmers refused to accept the compensation for their land - which was within the mining lease - leading to a lengthy court battle.

By the beginning of 2009, Tiomin stated that the year would be critical for Kwale but, by the end of that year, one of the company’s major investors, Jinchuan Group Ltd, pulled out of a deal which included taking a 70% controlling stake and cash injection of $25m.

Beleaguered Tiomin finally threw up its hands in despair and offloaded the project to Base Resources (then Base Iron) for a paltry $3m in February 2010.

After quitting Kwale, Tiomin merged with Vaaldiam Resources Ltd which focused on diamond mining in South America.

The Kwale project’s special mining licence covers an area of 56km² and is located approximately 50km south of Kenya’s second largest city, Mombasa, and 10km inland from the Indian Ocean. It consists of two main zones, South and Central Dune, and has a total proven 86.2m tonnes grading 5.4% heavy mineral content (HMC) and a probable reserve of 54.4m tonnes grading 4% HMC.

The total proven and probable reserves are therefore 140.6 tonnes grading 2.59% ilmenite, 0.65% rutile, and 0.29% zircon.

The Magarini sands which host the Kwale deposit are believed to be of aeolian origin, Base said, deposited as coastal dunes after conditions of intense erosion. The Kwale deposit is generally poorly stratified and contains a fraction of clay and silt of about 24% HMC is concentrated locally and are abundant in some places.

The general stratigraphic sequence of the Kwale deposit is composed of a brown sand at the surface, followed by orange or reddish sand, becoming more beige or pink at depth. The base of the deposit is weathered sandstone from the basal formation. White sand and clay are also found at the bottom of several holes, it added.

Kwale’s production

Over a mine life of 13 years, Base Resources is looking to produce on average 330,000 tpa ilmenite, 79,000 tpa rutile and 30,000 tpa zircon in the first seven years of operations. Over the final six years, production volumes will average 200,000 tpa ilmenite, 55,000 tpa rutile and 19,000 tpa zircon.

Despite a weakness in the zircon industry throughout 2012, Base believes it will be able to sell its zircon products: “The quantity of zircon is modest by global standards and therefore will be easily absorbed into global consumption,” the company told IM.

Of this, there are offtake agreements in place for roughly 70% of expected revenue which will be for 100% of rutile, 30% of ilmenite and 52% of zircon output volumes.

“We have strong interest for the un-contracted volume for each product and will continue dialogue with interested parties over the coming months - potentially choosing to secure further offtake contracts for some or all of that remaining tonnage,” the company said.

“Over the coming months we will determine our sales approach relating to the un-contracted volume for each product,” it added.

A major offtake agreement was signed in November 2011 with the world’s largest producer of TiO₂ pigment, DuPont, for 72% of its rutile production for the six-year period. In the last four years of the agreement DuPont has the right to reduce offtake volumes in line with its overall high-grade feedstock requirements.

Base said at the time that the offtake deal underpins about 35% of annual revenue for the Kwale project or up to 47% if additional optional volume is supplied. The other offtake partners have not been revealed.

Since purchasing the Kwale project from Tiomin, Base Resources has moved quickly to complete feasibility studies and to begin construction, which recently passed 50% completion.

But the development has not been without its challenges. In October 2012, the Kenyan government passed a legal notice that required 35% of any mining project in the country is to be owned by a local individual or organisation.

“It shall be a condition of every mining license that the mineral right in respect of which the license is issued shall have a component of local equity participation amount to at least 35% of the mineral right,” the regulation states.

Speaking at a conference at the time, Environment and Mineral Resources Minister Hon. Chirau Ali Mwakwere mentioned that the new mining bill, once enacted into law, would create a level playing field for all participants in the sector and bridge the gap in benefit sharing, according to the Kenyan environmental ministry’s blog.

In early January 2013, another blow came as the company’s exploration licences north of the Kwale project were cancelled for what Ali Mwakwere termed as “non-performance”.

The exploration licences - which covered a 113km² area in Ganze, Kilifi county - are completely unrelated to Kwale and located about 150km north of the main section. Base was considering using them to extend its mining after production began at the main site.

“We were banking on the expected cash-flow from the Kwale plant for us to move operations to the three Kilifi blocks,” Joe Schwartz, the Base Titanium general manager told Business Daily Africa.

“[Base Resources] has received formal notification that the Attorney General of Kenya has determined that the recently introduced 35% Local Equity Participation Regulation cannot be applied to the Special Mining Lease No. 23 covering the company’s 100% owned Kwale mineral sands project,” the company announced on 11 January 2013.

Another potential threat to the project has been the violence that occurred across Kenya during the period surrounding the political elections which took place on 4 March this year. Deaths have been reported both at polling stations and around the country.

The company, however, does not expect disruptions: “There is nothing to suggest that there will be any impact on our project or operations after the election,” the company told IM, “we will continue to provide a secure and safe environment for our people and our assets during and after the election period”.

Minerals Commodities - next in line

While Base Resources remains the front runner in the race to bring new minsands supply to the market, ASX-listed Minerals Commodities is not far behind as it looks to bring its Tormin project in South Africa online. “We expected production to commence in the last quarter of 2013,” CEO Andrew Lashbrooke told IM.

The Tormin project consists of a high-grade beach deposit located on South Africa’s west coast approximately 400km north of Cape Town. The predominant minerals of value are zircon and rutile, with ilmenite and garnet also occurring in potentially economic concentrations.

The Tormin heavy minerals have accumulated along a 12km long beach, to a maximum depth of 12 metres, with the favourable geomorphology of the J-shaped coast line working as a natural concentrator of offshore-sourced heavy minerals on the beach. The beach is an active environment, which continues to be replenished through tidal transportation of sands from deeper waters, the company pointed out.

Minerals Commodities carried out a feasibility study on the deposit in 2005 and a JORC resource estimate on the southern portion of the beach. More recently, the company has carried out processing test work and in July 2012 received environmental approval from the South African government to mine the Tormin project.

Minerals Commodities is developing the deposit in cooperation with Blastrite Ltd, South Africa’s largest producer of industrial minerals for the local surface preparation industry. The two have already signed a memorandum of understanding (MoU) for Blastrite to provide mining, processing, procurement, warehousing, logistics, human resource management, financial administration, IT and regulatory compliance for Tormin.

Blastrite’s head office is in Cape Town and the company operates nine other processing and distribution facilities in the country, including wet and dry heavy mineral concentration plants adjacent to Tormin.

Tormin’s production

The company is estimating annual production, for a mine life of just over four years, of 48,000 tpa non-magnetic zircon-rutile concentrate (grading 81% zircon and 11.6% rutile) as well as 134,000 tpa garnet concentrate (grading 71% garnet) and 100,000 tpa ilmenite.

Direct cash production costs for Tormin will be around $12-13/tonne* ore mined, estimated Mirabaud Securities, and all-in cash costs (inclusive of assumed CIF costs to China) at just over $18/tonne.

The upfront Capex requirement is estimated by Minerals Commodities at $16m, which includes 10% contingency.

There is also the potential for the deposit to be expanded offshore where a 1km area has been briefly explored. Exploration of this area could double the existing mine life, the company believes.

As of yet, Minerals Commodities has not announced any offtake agreements but, Lashbrooke told IM: “We have had very good interest in the products and hope to be able to announce offtake agreements for 100% of the product to be produced by the end of March 2013”.

While Base Resources’ Kwale project expects to produce around 10% of total current market demand in certain minerals, the Tormin project is on a much smaller scale - expecting to produce less than 1% of total global supply, Lashbrooke believes that the project will not have a huge impact on the overall market structure.

Despite this, projected prices still show that Tormin will stand as a good cash generator for Minerals Commodities.

Minerals Commodities second star

Minerals Commodities also has a second project in South Africa which it is exploring and hopes to bring online in the next five years.

The Xolobeni project is located in South Africa but on the opposite coast to Tormin and has a total resource of 346m tonnes grading 5% heavy mineral content of which 224m tonnes, grading 5.7%, is in the measured category.

The main mineral at Xolobeni is ilmenite but the pre-feasibility study also indicates rutile and zircon potential.

Mineral Deposits - making strides in Senegal

The third jewel in Africa’s feedstock crown is Mineral Deposits Ltd’s Grande C™te mineral sands project in Senegal, West Africa. In September 2004, Mineral Deposits was selected by the Senegalese government to develop the project which it then progressed through feasibility to construction.

The project is a 445km² area located on a coastal dune system starting about 50km north-east of the Senegal capital of Dakar. The mineralised dune system averages 4km in width and contains largely un-vegetated sand masses.

Both the dunes and the underlying marine sands contain heavy minerals, principally ilmenite with accessory zircon, rutile and leucoxene.

The ore body comprises free flowing sands of a consistent grain size. There is no overburden and only minor vegetation with minimal slimes and no hard lenses - thereby limiting operating costs, Mineral Deposits pointed out.

The deposit has a measured and indicated resource of 1.03bn tonnes grading 1.73% heavy mineral content with the majority classified as measured. The proven ore reserves are 746m tonnes grading 1.8% heavy mineral content in addition to a probable reserve of 5m tonnes grading 1.7% heavy mineral content.

Grande Cote’s production

The Grande Cote project is scheduled to come online in late 2013 and is aiming to supply 575,000 tpa ilmenite, 6,000 tpa rutile, 10,000 tpa leucoxene, and 85,000 tpa zircon over a 14-year mine life.

The ilmenite production will represent 10% of current global supply while the zircon production will represent 7%.

Of the 575,000 tpa ilmenite produced, 400,000 tpa will be shipped to the Tyssedal titanium slag production facility in Norway in which Mineral Deposits is a joint venture partner with French group Eramet. The average TiO₂ grade of this slag will be 54%.

The remaining 175,000 tpa will be sold as feedstock for pigment production and will have a grade of 59% TiO₂.

The rutile and leucoxene will be produced in relatively small quantities in comparison to market size and will be marketed as suitable for the welding sector as well as more traditional uses. Rutile and other higher grade TiO₂ products are some of the most important constituents of welding flux, responsible for slag forming properties, because they have a high melting point and are chemically inert.

The zircon will be of a premium quality, Mineral Deposits indicated, and will have low impurities meaning it will be suitable for the full spectrum of zircon consumers.

The ore body size and characteristics provide for a large scale dredge operation, mining approximately 55m tpa, and conventional processing technology. The dredge path has only been set out for the first 14 years and will cover an area which is approximately 40% of the mine lease.

Mining will be carried out by dredging a continuous canal through the dunal orebody. The dredge will float in an artificial pond accompanied by a floating spiral concentrator along with a tailings stacker that will deposit the tailings to fill the mined canal and achieve a final landform.

The mine life could be extended by 10 or more years beyond the current ore reserves if further drilling is carried out.

Tyssedal titanium slag

The Tyssedal ilmenite upgrading facility on Norway’s east coast has been producing titanium slag - for both sulphate and chloride pigment customers - and pig iron since 1986. In July 2011, Mineral Deposits and Eramet signed a joint venture agreement for control of the plant.

Part of the agreement was the supply of 400,000 tpa ilmenite to TiZir, the company which runs that facility, to allow expansion. TiZir currently sources its ilmenite from a nearby mine in Tellnes, Norway.

“The security of the additional ilmenite supply that will be available when Grande C™te comes on stream provides Tyssedal with expansion opportunities. A feasibility study is currently underway to assess the potential for a second furnace, thereby doubling the capacity of the plant,” TiZir said.

The current capacity is 200,000 tpa titanium slag and 110,000 tpa high purity pig iron but it would look to upgrade its nameplate capacity to 220,000 tpa by 2014 and 400,000+ tpa by 2016. To do so it would have to reduce actual production in the short run to 140,000-150,000 tonnes in 2014 but increase to 200,000-220,000 tonnes again in 2015 and reach full capacity in 2016.

According to the company, this would make it the second largest producer worldwide below Rio Tinto, which produces 2.25bn tpa slag, and above Tronox and the accumulated Chinese producers, which produce 370,000 tpa slag and 200,000 tpa slag respectively.

The ramp-up over time to its maximum capacity of 400,000+ tpa slag means that TiZir will not require the 400,000 tpa ilmenite initially “but most likely only after a second furnace has been constructed,” Mineral Deposits CEO Rick Sharp told IM.

“Therefore it is likely that this ilmenite will be sold directly to market for a couple of years,” he said.

Production for 2014

While 2013 is to be Africa’s year, 2014 looks destined to be Australia’s year with the most likely to come online first being MZI Resources (formerly Matilda Zircon) which recently revised the start date for its Keysbrook leucoxene project in Western Australia from late 2013 to Q1 2014. With the length of the lead times confirmed, the company believes it will be able to begin selling its products in Q2 2014. It has hired MSP Engineering to complete the front end engineering design (FEED) for the project.

MZI believes that the revised date will mesh well with the TiO₂ feedstock industry, which has been in sharp decline since Q3 2012. The Australia-based company also increased the size of the indicated and inferred resources by 60%.

The deposit consists of 78.9m tonnes grading 2.5% heavy mineral content (HMC) which includes an unchanged measured resource of 34.1m tonnes grading 2.6%, with the remainder being 33.2m tonnes grading 2.2% and 11.6m tonnes grading 2.6%.

This new estimate more than doubles the potential mine life of Keysbrook to 15 years compared with the 7.2 years found in the feasibility study, which was based on accessible mineral resources and shire approvals.

Keysbrook is estimated to produce 70,000 tpa leucoxene and 10,000 tpa zircon over an eight-year mine life when it starts production.

The company has secured an offtake agreement with DuPont for the leucoxene produced at its Keysbrook project in Western Australia.

Continuing the Australian dominance will be Metallica Minerals, which is looking to bring its Urquhart Point project in northern Queensland, Australia, online early in 2014. The project area has a JORC indicated resource standard of 2.8m tonnes of ore with an average heavy mineral sand grade of 7.03%.

The project is estimated to produce 20,000 tpa zircon and rutile concentrate over a project life of four years. However, where additional resources are located during exploration, the project life may be extended up to a maximum of six years. The company guarantees a TiO₂ minimum content of 47% and a Zr₂O minimum content of 25%.

There are no offtake agreements in place for Urquhart Point but the company is looking for potential offtake partners.

Gunson Resources is also approaching production with its Coburn project located in Western Australia. The company recently completed a study to boost production with zircon production rising to 49,500 tpa from 41,000 tpa so that the product will contribute 65% of total revenues.

Ilmenite production will also rise to 109,000 tpa from 89,000 tpa and contribute 19% of revenue while its HiTi - a mixture of all the recoverable leucoxene and rutile, containing 91.5% titanium dioxide (TiO₂) - production will grow to 23,500 tpa from 19,000 tpa and contribute 16% of revenue.

“The expanded mining rate under the re-optimised operating plan reduces the mine life by approximately 17%, from 23 years to 19 years,” said Gunson.

Gunson has been required to reduce its operating costs and boost its revenue to meet a minimum set by its prospective joint venture POSCO SPV - which is the investment vehicle of South Korean steel producer POSCO and a South Korean investment fund.

The Australia-based company also has an existing offtake agreement with DuPont for Gunson’s share of ilmenite in its Western Australia Coburn mine. The ilmenite has a TiO₂ grade of 61.5% and will be supplied to DuPont for five years.

Another Australian company, World Titanium Resources, is looking to bring a project online in late 2014 in Madagascar. Production was initially scheduled for late 2014 or early 2015 but, as IM was going to press, the company signed an agreement with one of the largest Chinese TiO₂ pigment producers, Sichuan Lomon Titanium.

Lomon have agreed to pay all capital costs - approximately $300m - and will be offered 80% of the ilmenite output of the mine which will be doubled to approximately 800,000 tpa.

The mine life will be unaffected because the resource can support a mine life of up to 60 years.

There are also a number of other new mineral sands projects both in China and in the Western world that could come online in 2014 but may slip back to 2015. However, if all projects do come online it will mean a large expansion in supply which could change the face of an industry that is currently dominated by a small number of large producers.

Titanium dioxide feedstocks - the facts

Titanium dioxide feedstocks are produced from heavy mineral sands (HMS) deposits found in paleo-strandlines. These HMS deposits were created when paleorivers eroded sediment from the hinterlands and swept it southwards down to the sea.

From there, it was deposited as strandlines along a beach by longshore drift or by general wave, wind, and tidal action. As time passed they were covered by sand dunes and as result, in order to mine them, large quantities of sand have to be removed to access the heavy minerals.

The main minerals produced are rutile and ilmenite but viable deposits can also exist that use leucoxene.

Rutile is the best and most expensive of the natural feedstocks whereas ilmenite can only be used in the sulphate process or upgraded into a synthetic feedstock. While rutile is sourced only from mineral sand deposit, ilmenite can come from either hard rock or mineral sand deposits.

Synthetic rutile is produced by reducing the iron oxide in ilmenite to metallic iron using carbon monoxide, followed by reoxidation and separation from the TiO₂ rich fraction (Becher process) or leaching with hydrochloric acid (Benelite process).

Slag feedstocks are produced by the smelting of ilmenite with coal at high temperature. The process is adjusted to produce the different particle size requirements for sulphate or chloride use.

Leucoxene tends to have a high titanium percentage (70%-80%), but is exceedingly rare.

Industry structure

The feedstock industry mainly consists of ilmenite and rutile with very few producers of synthetic rutile or slag.

Overall, the industry is dominated by three main producers - Rio Tinto Plc, Iluka Resources Ltd, and Tronox Inc. which produce over half of market output with several smaller producers making up the remainder.

Aside from the three main producers, rutile and ilmenite producers include Sierra Rutile, Crimea Titan’s mining arm, Kenmare Resources, Cristal’s mining arm, DuPont’s mining arm and Unimin among others.

Synthetic rutile is produced by Tronox Inc. and Iluka Resources while titanium slag is produced by Tronox Inc., TiZir and Rio Tinto.

World production of rutile in 2011 was 830,000 tonnes while production of ilmenite was 6.2m tonnes according to the US Geological Survey.

The decline and fall of mineral sand prices

Ilmenite and rutile prices have had a turbulent two years seeing both soaring heights and, more recently, rocky slopes.

Previous to 2011, rutile and ilmenite had settled at relatively stable long term prices but in 2011 they began to increase dramatically as demand spiked in the Far East and TiO₂ pigment producers began to return to higher capacities after the financial crisis.

In March 2011, rutile (concentrate min 95% TiO₂, bagged, FOB Australia) was priced between $675-750/tonne, according to the IM prices database, but in six months the range had doubled to $1,348-1,600/tonne.

Prices continued to rise steeply, spurred on by panic buying from end users to whom raw material costs were becoming a burden that was impacting profits, and peaked at a range of $2,500-2,800/tonne in April 2012.

Buying slowed and prices began to drop steadily as end users implemented inventory destocking programmes which slowed their rutile demand and prices have now reached between $1,500-1,700/tonne with some producers going as low as $1,250/tonne and below.

Ilmenite, on the other hand, has seen the prices rises and falls but on a much smaller scale and with a less severe drop. Ilmenite (Bulk concentrates, min 54% TiO₂, FOB Australia) in March 2011 was priced between $120-140/tonne.

By 17 January 2012 prices had spiked to a range of $250-350/tonne, tending towards the higher end of the range. Prices have since dropped off to roughly $300/tonne and below.

Rutile has seen a much larger drop than ilmenite because it is used mainly the chloride process -used by six main producers: DuPont, Cristal, Tronox, Kronos, Huntsman and ISK, as well as one or two possible producers in China - which is a smaller market than the sulphate and synthetic feedstock markets that ilmenite serves.

The sulphate market also produces less costly and slightly lower quality TiO₂ pigment than the chloride market which means that some pigment using end-users could look to use it as a substitute for their chloride-produced TiO₂.

Industry to bounce back in 2013

There is no doubt that 2012 was a difficult year all round. Both TiO₂ feedstock and pigment producers saw falling prices and were forced to curtail capacity with major producers Iluka Resources and Rio Tinto going to the extent of mothballing facilities due to the reduced demand.

Pigment producers found it no easier with TiO₂ pigment prices slipping throughout the year as end users continued to destock their inventories.

Many remain extremely positive that 2013 will see a pickup in the pigment side of the industry which will translate to the feedstock industry.

“If we see the expected economic recovery through the year we would also expect to see some improvement in pricing in H2,” Base Resources told IM.

Minerals Commodities agreed: “There does seem to be a general bottoming out in the market from the information we have seen,” but added that caveat that “how quickly the stock within the system is absorbed and how or when this will translate into pricing is difficult to say”.

At the TZMI conference in Hong Kong in November, the general consensus was that the beginning of 2013 will be where the market stabilises and the second half of 2013 is where demand will begin to rise again.

The zircon market, on the other hand, may not see a similar increase.