Is there enough demand for new TiO2 feedstock producers?

Published: Monday, 28 April 2014

IM Editor-in-chief, Siobhan Lismore-Scott, discovers the updates in the development of new titanium dioxide projects in Africa and Australia, and analyses them in light of the currently difficult market conditions experienced by main producers.

High inventories, lacklustre demand, intermittent power supply, unfavourable exchange rates and falling prices; these are the issues that have plagued the mineral sands industry over the last few years.

Despite this, titanium dioxide (TiO2) smaller feedstock producers and those developing projects remain upbeat about the future, with those interviewed by IM saying that there were some positive signs emerging for the next quarter.

However, information released by some of those producing indicated that this was not case and that demand continued to be low.

At the end of Q1 2014, a picture was emerging of an industry seeking to cut costs where ever possible and keep plans of expansion conservative.

Current producers down tools
Rio Tinto

In May 2011, Rio Tinto, one of the world’s largest producers of TiO2 feedstocks via its Fer et Titane (RTFT) subsidiary, announced that it would be extending the life of its operations in a project named TiO2050. This project would see the Lac Tio mine life extended to 2050 and also the upgrading of equipment and systems at Sorel-Tracey to improve efficiency.

This plan of action was expected to cost RTFT $818m.

The company later announced that it would build a $4bn feedstock production plant in Quebec, under a plan named ‘TiO4’ which also encompassed a pre-feasibility study for an additional mine in Madagascar.

Two years down the line and, with prices sagging towards the bottom of the trough, Rio Tinto CEO Sam Walsh announced that the company would cancel its feedstock expansion plans. In South Africa, where Rio Tinto is part owner of Richard Bay Minerals, the company said it would put its zircon and rutile processing operations on a care and maintenance footing. The Quebec chloride slag production facility was taken offline and the pre-feasibility study was also cancelled.

The move comes “in response to weak demand and to reduce operating costs,” the company stated.

Iluka Resources

Iluka Resources also downed tools in order to wait for market conditions to improve.

In 2013 the company cut its operating capacity to around 40% and idled its Eneabba mining operations in Western Australia (WA), which produces ilmenite, zircon and rutile. It also idled its second synthetic rutile kiln in Capel, WA and the Tutunup South ilmenite mine. Outputs at the company’s mineral separation plants were restricted.

Pigment plant yields, which were as high as 90% in 2011, declined to the mid 70% level and, in some cases, to as low as 65% by early 2013.

Production of zircon, synthetic rutile and rutile, slipped 42% in 2013 when compared to 2012, “consistent with Iluka’s preferred approach to a period of low market demand,” the company said.

For 2014, the company said that it would run its Hamilton mineral separation plant on a month on/month off basis.

“We expect to run the mineral separation plant over the course of the year, at lower utilisation rates, as was the case in 2013, as demand progressively recovers. The exact configuration, whether one month on, one month off, is a matter for operational determination,” an Iluka spokesman said.

In its Q1 2014 results, Iluka revealed that total mineral sands production fell 18.6% year-on-year (y-o-y) as the company continues to operate at below full production rates.

Rutile production was 33,200 tonnes, an increase quarter-on-quarter (q-o-q) of 50%, and a y-o-y increase of 29%, reflecting a return to normal mining operations in the Murray Basin.

Synthetic rutile was once again not produced, bringing total mineral sands production figures down.

Shipments from existing inventory are scheduled to recommence for synthetic rutile in Q2 2014.

Ilmenite production also saw a substantial decline over the quarter compared with the same period last year, with only 110,200 tonnes produced, compared with 160,900 previously. Production declined q-o-q by 5.3% from 116,400 tonnes at the end of last year.

New producers Sierra Rutile react

For new feedstock producers, or those looking to expand, the slip in the market and the fact that established producers had downed tools and reassessed their operations, was a warning shot.

For a company like Sierra Rutile, it meant reassessing its costs in relation to its Gangama Dry Mining Project.

The company completed its first expansion project, Lanti Dry Mining in 2012, which is now, “fully up and running and working to nameplate capacity,” according to CEO John Sisay.

The next stage of growth for Sierra Rutile will be the Gangama dry mining project.

Here the company recently completed a value-optimisation and re-costing exercise for its feasibility study, which resulted in more than a 17% decrease in the capital cost, to a total of $85m from the $103m anticipated in the pre-feasibility study.

“Subsequent refinement has reduced this cost further to $81m, a 21% reduction from the original estimate. Of this amount, 77% is at fixed prices which are not subject to increase,” Sisay told IM.

As well as looking at how costs could be cut, Sierra Rutile also optimised the mine plan for its Gangama deposit, including the incorporation of the current processing recoveries into the plan.

This optimisation resulted in a greater than 11% increase in the average rutile production over the life of the deposit to 93,100 tpa, from 83,400 tpa, which was outlined in the pre-feasibility study. Peak production in the first year of operation is expected to be over 100,000 tonnes of rutile.

“Market conditions remain a significant driver in our decision to develop the Gangama dry mining project,” Sisay told IM.

“In this regard, although we are confident of the merits of the Gangama project and pleased with recent positive market developments, we wish to ensure that the current market recovery is fully embedded before implementing this project. We will continue to re-assess this decision in light of on-going market developments,” he added.

Is there still a market for projects in the pipeline?

Despite the fact that current producers are tightening their purse strings and keeping an eye on the balance sheet, those developing projects, or ramping up new projects, remain upbeat about the opportunities in the market. Also, by mid April, paint company’s Q1 results were indicating that the tide was starting to turn and that demand was on the up. Both AkzoNobel and PPG posted positive results and Kenmare Resources, which is ramping up its Moma ilmenite and zircon mine in Madagascar, said that it had seen increased demand for its products over Q1 2014.

Base Resources

For Base Resources - which brought its Kwale mineral sands project online in Q2 2014 - sending its first shipment of ilmenite, and a further shipment of rutile and zircon in April, to offtake partners in China, its low overheads show that it is still profitable even with the market where it is.

The company shipped the rutile from the Likoni Port facility and the first containers of zircon via the Mombasa Port container facility. “Kwale is profitable even at these currently soft prices. We do believe the tide will turn as the long term fundamentals remain robust, however, I anticipate these low levels to remain for the next couple of quarters,” managing director Tim Carstens told IM.

Despite the project’s lower overheads, Carstens told IM that Base Resources will be keeping a close eye on the project during the ramp up and commissioning stage to “ensure throughputs and recoveries are where they should be”.

“The things we have learned from this project are many and we are now particularly well equipped to tackle the next project,” Carstens added.

Base Resources expects to achieve capacity for rutile and ilmenite by the end of June 2014 and the company expects to reach capacity for zircon by the end of 2014.

Image Resources

For Image Resources, which is developing the Boonanarring project in the North Perth Basin, the slackening TiO2 market means that the company is keen to underline the other resources found in the Boonanarring reserves, specifically the zircon reserves.

“The feedstock revenue is probably less critical to Image than it would be for other mineral sands operations. Given the unusually high zircon grade in the Boonanarring reserves (24.5% zircon in the HM, or 1.6% in-situ zircon grade) in the first two to three years of operation, zircon and rutile will bring in 75% of the net revenue from the NPB project,” managing director Peter Davies told IM.

“We will also produce around 100,000 tpa of high quality ilmenite with high TiO2 content and low U+Th, which we would expect to be an attractive blending feedstock for a number of different applications,” he added.

There are well-documented issues with bringing a project online in Australia. Firstly, energy costs are higher than projects being developed elsewhere (in Africa, for example), as are labour costs, and there is the added complication of the carbon tax question.

In fact, Australia’s Senate has repealed the government’s plans to implement an Exploration Development Incentive (EDI) to give tax breaks to junior exploration companies.

The EDI, originally announced in September 2013, is expected to focus on incentives for greenfield minerals exploration activity, allowing an investor in a mining company to receive a tax deduction as a result of the company’s underlying expenditure on a flow through basis.

The coalition government said the benefit will be capped to A$100m ($91m*) over 2015 to 2017.

For Image, this alleviates some of the risk associated with bringing a project online in Australia as well as there being many positives to such project development.

“Of more importance are the positive contributions to the project economics derived from its location,” Davies explained.

“With an experienced local residential workforce, Image is not confronted by the usual costs associated with Fly-in, Fly-out (FIFO) operations, nor do we have to pay remote area premiums on salaries and wages.Ê In addition the capital cost of the project has been significantly reduced through the existence of a main heavy haulage road, power lines, gas pipelines and our own water bore all within 500 metres of the planned plant site,” he added.

Reed Resources

For Reed Resources, which is developing a vanadium-titanium-iron mineral deposit in the Murchison region of WA, the associated costs which come from working in the country have to be accepted, but as the company believes it has a low-cost operation, it believes it can offset the higher associated overheads.

“The operating costs were estimated for processing run-of-mine ore, not higher grade concentrates, and used conservative estimates for Australian labour, energy and reagents costs and accounted for only the vanadium by-product (using flat at a price of $5/lb V2O5) which came in at $1,214/tonne of TiO2,” Chris Reed, CEO, told IM.

“I think one would categorise that as so far down the cost curve as to be disruptive to existing technologies/producers,” he added.

The company does not yet have an offtake partner, but Reed said that it was “keen to demonstrate the process on a continuous scale, obtain a meaningful amount of end product, reach out to those who we think can benefit the most from having a secure supply of the cheapest high-purity titanium feedstock and ask them if they’d like to share the benefits”.

“I wouldn’t ask them to fund the upstream mine and expect not to be asked to fund the down streaming plant,” Reed added.

A market for growth

While the market has flagged over the last year, developing projects have remained upbeat, yet cautious, about their assets.

Below is a table of other developing projects which look set to come online in the near term, or which are already online but are ramping up production.