Supply Security Report: Mineral Sands

The heavy mineral sands market, including zircon and the titanium minerals ilmenite, leucoxene and rutile, has been a challenging one for primary material producers in 2015. While depressed markets in titanium dioxide (TiO₂) have caused the shutdown of some mines and processing plants, others have touted the robust medium to long term fundamentals of the market, maintaining their optimism about the future.

© 2015 Iluka Resource Limited

Similarly in the zircon market, depressed prices have caused the shutdown of key mines in a strategic move to curtail production and further price deprecation.

Supply Security

Zircon

Zircon reserves are primarily concentrated in Australia and South Africa, which also corresponds to where the bulk of production comes from.

In 2015, Australia produced some 500,000 tonnes zircon, and South Africa produced 380,000 tonnes. China, usually known for leading commodity production volume rankings, produced 140,000 tonnes in 2015. China squeezed in front of Indonesia which produced 110,000 tonnes, the US with 60,000 tonnes, Mozambique with 50,000 tonnes and India with 40,000 tonnes.

World zircon reserves are estimated at a total of 78m tonnes, with 51m tonnes located in Australia and a further 14m tonnes in South Africa. These paint a clear picture as to why Australia remains a key exploration destination for zircon-focused producer Iluka Resources.

Zircon reserves

Total 77.7m tonnes. Excludes Indonesia, data unavailable. Source: USGS

Zircon production

Total 77.7m tonnes. Source: USGS

Titanium dioxide

TiO₂ tells a different story, wherein China plays a larger role in production. The country produces around 900,000 tpa ilmenite, while it produces no rutile. This is because China mines mainly sulphate ilmenite from hard rock deposits, rather than mineral sands deposits, which is sold directly or upgraded to sulphate slag.

Panzhihua, south of Chengdu in Sichuan Province in central western China is a key area for ilmenite supply in China. The ilmenite is a by-product of the magnetite iron ore in that province. Vanadium is another by-product at the facility, which, like ilmenite, needs to be extracted from the magnetite during processing. The ilmenite is removed from the magnetite tailings just prior to the material running through the waste dams built specifically. It is part of the non-metallic fraction whereas the finely milled magnetite is removed using large drum magnets.

Chinese ilmenite production is followed by Australia, a solely mineral sand-producing country, with an output of 720m tpa. This is followed by Vietnam with 540m tpa and Kenya with 430m tpa. 

Rutile production is different again, with Australia coming in at number one with 144,000 tonnes produced in 2015, and Sierra Leone with 110,000 tonnes. 

Ilmenite production

Total 5.61m tonnes. Source: USGS

Ilmenite reserves

Total 742.5m tonnes. Excludes Russia and Senegal, data unavailable. Other countries includes USA, Ukraine, Vietnam. Source: USGS

The mineral sands industry has numerous players, a number which is extended if one considers hard rock titanium production, and is extended further if one is also inclusive of upstream product producers. Here we focus on the primary producers.

Iluka

Iluka is primarily concerned with zircon, and hence concentrates its exploration and production in Australia. Iluka operates the Tutunup South mine in Western Australia as well as its synthetic rutile kiln 2 processing Tutunup ilmenite.

Elsewhere, Iluka processes heavy minerals at its Hamilton mineral separation plant, which is planned to operate in 2016 at about 60% capacity, utilising a blend of Woornack, Rownack, Pirro (WRP) and Jacinth-Ambrosia heavy mineral sands from current stockpiles.

Iluka idled mining and concentrating activities at Jacinth Ambrosa from mid-April to allow for a draw-down of heavy mineral stockpiles held on site, for a period of 18-24 months. Jacinth Ambrosia heavy minerals are also processed at the Narngulu separation plant, which is operating at around 50% capacity, and is located in Western Australia.

Previous to December 2015, Iluka also operated a mine in Virginia (US) which produced around 184,000 tonnes heavy minerals during the calendar year. The company’s only current operating mine, Tutunup, mined around 127m tonnes in the same year.

In total Iluka produced 397,000 tonnes zircon from all of its operations in the 12 months leading up to March 2016, 141,000 tonnes rutile, 215,800 tonnes synthetic rutile and 467,800 ilmenite. In 2015, Iluka estimated that it produced around 32% of the world’s zircon, and 4% of its TiO₂.

Rio Tinto

Next in terms of zircon production is Rio Tinto, with an estimated 17% of world production mostly from its South African Richards Bay Minerals (RBM) operations. Rio’s QIT Madagascar Minerals (QMM) operation in south-eastern Madagascar produces around 1% of the world’s zircon, and 3% of the world’s TiO₂ in the form of chlorite. Rio Tinto Fer et Titane (RTFT), is a hard-rock mine located in Canada, 100% owned by Rio Tinto that produces chlorite slag from ilmenite, as well as sulphate slag and upgraded slag to account for about 8% of the world’s TiO₂ supply.

Cristal 

Cristal operates the Ginkgo and Snapper mines in New South Wales, Australia, as well as the Wonnerup mine in Western Australia. Cristal’s lesser known mine is located in Brazil in the municipality of Mataraca, Paraiba, comprising of a floating plant and dredge that extracts ilmenite, zircon, rutile and cyanite (used in the ceramic, welding and refractions industries).

In the 2014 calendar year, Cristal produced about 160,000 tonnes heavy minerals from its Wonnerup mine, as well as about 90,000 tonnes in the first quarter of 2015 at its Ginkgo and Snapper mines. This was the last known release to the Singapore Stock Exchange revealing production.

Tronox

Tronox currently operates out of Australia at Cooljarloo and in Africa at Namakwa Sands and KZN Sands’ Fairbreeze Mine. Tronox shut down its Hillendale mine in 2014 and replaced it with the Fairbreeze Operation in late 2015, which is still within the broader KZN Sands project area. 

The company expects the Fairbreeze mine (KZN Sands) to reach annual production of about 220,000 tonnes titanium slag, 30,000 tonnes of rutile, 121,000 tonnes low-manganese pig iron and 60,000 tonnes zircon once production rates have been ramped up in 2016.

Rutile reserves

Total 53.6m tonnes. Excludes Madagascar, Sierra Leone, data not available. US data included in ilmenite. Source: USGS

Rutile production

Total 483,000 tonnes. US data included in ilmenite. Source: USGS

Sierra Rutile

Sierra Rutile supplies product to all consuming sectors; pigments, metal and welding. The company plans to become the world’s largest primary producer of natural rutile in 2016, which would mean overtaking Australian producers.

Sierra Rutile currently operates the Lanti mineral sands mine, with plans to open the Gangama mine in the second quarter of 2016 and Sembehun sometime later this year, eventually phasing out Lanti. Gangama has reserves of 40.59m tonnes ore with 4.69% heavy mineral content, and could add up to 93,000 tpa rutile to the company’s capacity once production is ramped up. Currently the company produces around 164,000 heavy minerals per year.

Base Resources

Base Resources operates the Kwale mine in Kenya which has an estimated 110m tonnes of ore at 5% heavy minerals. Of this 6% is zircon, 13% is rutile and 54% is ilmenite. In April, the company announced that it had produced higher-than-expected volumes in the quarter ended March 2016 with 110,760 tonnes ilmenite, 21,194 tonnes rutile and 7,865 tonnes zircon. The unexpected increase led the company to raise its 2015-2016 financial year guidance to 82,000-86,00 tonnes rutile, 440,000-455 tonnes ilmenite and 29,000-31,000 tonnes zircon.

Mineral Deposits Limited (MDL)

MDL owns the Grand Cote mineral sands mine in Senegal, producing some 140,700 tonnes heavy mineral concentrate in the first quarter of 2016. MDL sold 71% of its product, of which 65,001 was ilmenite, 9,661 tonnes zircon and 1,740 tonnes rutile and leucoxene. 

Imenite and zircon production were down 15.2% and 21.3% respectively, while sales of ilmenite and zircon were down 53% and 18% respectively compared to 4Q 2015. This was primarily as a result of the continuing ramp up of operations at its joint venture (JV) operation with ERAMET, the TiZir Titanium & Iron ilmenite upgrading facility in Tyssedal, Norway, which impacted the timing of ilmenite shipments. Softer zircon sales were blamed partly on lower available inventory.

Southern Ionics

Southern Ionics opened its mineral sands plant in 2015, and began mining later in the same year. The Zircon Industry Association reported that 5,000 tonnes zircon was produced from the company’s mine, Mission South, in 2014, which would eventually ramp up to about 30,000 tpa, and have a life of 10-15 years.

Chemours

Chemours produces TiO₂ products at its other sites in Mississippi and Tennesee in the US, and in Taiwan, and the company recently started up its new Altamira TiO₂ production line in Mexico, which is anticipated to reach a 200,000 tpa nameplate capacity over the next few years. As a result the company will balance production from its other lines.

Sibelco

Sibelco owns three mineral sands deposits on North Stradbroke Island, Queensland, Australia, and is currently being subjected to growing concerns over the local environment. The Yarraman mine site ceased operation as of August 2015 and is subject to rehabilitation. The second mine, a silica sand deposit called Vance, has been non-operational since 2013. 

The mining lease for Enterprise makes up 3,235 hectares (32.35km²) or 13.2% of the island, with active mining being undertaken on 400 hectares (4km²), or 2% of the island. While mining takes up only a small portion of the area, public discussion and debate about the interconnected issues of mining, Aboriginal land rights, and the environment have been ongoing for many years. 

On average, Enterprise produces some 220,000 tpa heavy minerals, at a variable grade from 0.5-3% which is dominated mostly by ilmenite and smaller but still significant amounts of zircon.

MZI

MZI has been the subject much of media attention as it is the newest entrant into the mineral sands market. 

The company is targeting the production of 29,000 tpa zircon concentrate (56% ZrO₂ + 11% rutile grade TiO₂), 38,000 tpa L88 product and 29,000 tpa L70 product from its 72m tonne (2.2% heavy mineral) Keysbrook Mine in Western Australia. L70 and L88 are terms used by MZI to differentiate its high and low grade leucoxene products. L70 comprises leucoxene with an average TiO₂ content of between 65-85% and L88 comprises minerals with an average TiO₂ content between 85-95%.

MZI’s first shipment of L88, originally targeted for late March/early April, is now scheduled to occur later in the current quarter, reflecting slower than expected build-up of saleable L88 stocks and the timing of customer arranged shipping schedules. Despite the rescheduled L88 shipment, sales of all products for the March quarter totaled 11,397 tonnes, comprising 4,572 tonnes of zircon concentrate and 6,825 tonnes of L70. Sales of zircon concentrate from the Keysbrook operations commenced in late December 2015 with 1,775 tonnes produced that quarter, a number which has risen to 4,888 tonnes in the most recent quarter.

VV Mineral

India’s largest manufacturer of ilmenite and garnet, VV Minerals, accounts for one third of India’s 900,000 tpa ilmenite production, or 300,000 tonnes. VVM’s actual sales for 2015 are also likely to be around this level, which is an increase on 2014 levels.

Other

Russian mineral sands miner IRC Ltd shut down its Kuranakh deposit in late 2015, producing 144,005 tonnes ilmenite and 830,767 tonnes iron ore in the first nine months of its last year of operation.

Australia’s Queensland Goondicum mineral sand deposit was restarted in April 2015 by Melior Resources, but shortly thereafter shut down in August of 2015. As of 30 June 2015, the Goondicum mine had produced 15,000 tonnes ilmenite and 2,000 tonnes apatite. The plant operated at approximately 50% of its ilmenite capacity in line with its six month ramp-up plan. The first trial cargo of 6,600 tonnes of on-specification product was shipped on 23 June 2015.

Doral, a recent mineral sands miner located in Western Australia, is currently in-between projects with its Dardanup mine now shut-down permanently. Yoongarillup is poised to replace Dardanup and is expected that up to 4m tonnes heavy mineral sand ore will be mined to produce 256,000 tonnes heavy mineral concentrate over a three year operating period.

Monetizing Monazite

One mineral often overlooked in the mineral sands suite of minerals is Monazite. Monazite is a rare-earth phosphate which commonly contains thorium and is currently produced as a byproduct in heavy mineral sands mining.

Monazite is currently discarded by many heavy mineral sands miners as a waste product; the mineral is dispersed back through the original host material when a mining site is returned to its post-mining land use.  This dispersal of monazite is carried out to prevent concentrations of radioactivity in rehabilitated mine sites.  However, the thorium and rare earths present in monazite are neglected as a resource as it is likely to be uneconomic to recover the dispersed monazite for its rare earth and thorium content.

When monazite is not discarded it is primarily used in the production of rare earths, with thorium as a minor byproduct. Thorium and its compounds are produced primarily from monazite, either from heavy mineral sands or from tin mining (cassiterite). 

While China’s production of monazite and thorium compounds is hard to quantify, India, Brazil, Malaysia, Thailand and Vietnam all extract the mineral, with India leading volumes. In terms of international trade, China was the leading importer of monazite and Thailand was the leading exporter in 2015.

Current producers of rare earth minerals from heavy mineral sand monazite include Indian Rare Earths Ltd (IREL) and Kerala Metals & Minerals Ltd (KMML), both located in India. According to the US Geological Survey, IREL has a production capacity of 10,000 tpa monazite concentrate and KMML has an estimated 240 tpa capacity.

One public company rethinking monazite’s potential is Medallion Resources, which is focused on extracting rare earths from mineral sands and as of 2016 is seeking equity capital and government-sponsored programmes to have a qualified mineral lab conduct pilot-scale tests. The company previously yielded a refinery-ready rare earth product as well as a calcium phosphate byproduct. Currently Medallion is looking primarily to South East Asia for long term mineral sand suppliers.

Market Demand

In terms of zircon, demand according to Iluka has increased in Europe, remained stable in the Americas, and has declined in China.  Lower demand was a result of rumoured action on second quarter prices by a major Iluka competitor.

The miner expects zircon sales to recover in Q2, but conceded it may take longer to make up for slow March sales (see p21).

Demand for Iluka’s high grade titanium feedstocks of rutile and synthetic rutile has increased y-o-y, reflected in higher sales and requests from some customers to bring forward shipments for the first time since.

Rio Tinto’s first quarter production volumes indicated an upswing in TiO₂ demand. However, volume comparisons with this time last year indicate a 24% decrease in TiO₂ slag production.

Just as Iluka expects zircon demand to recover in Q2, Sierra Rutile forecasts that TiO₂ demand will pick up in conjunction with the so-called "painting season" in Europe and the US.

Price trends

Despite the continued threat of TiO₂ price declines due to oversupply, 2016 has seen a number of price increases for TiO₂ pigment from both China and internationally. Chinese price increases have been attributed to supply tightness, while major US producers including Chemours, Huntsman and Tronox said that hikes were necessary for the sustainability of their businesses.

In its latest set of company results, Tronox asserted that Q1 indicated "a turning point in the long decline in TiO₂ pigment prices," with the expectation that prices will continue to rise on a quarterly basis, despite averaging a 19% y-o-y decline and a 4% decline sequentially.

Following the spate of TiO₂ price increases by major producers, questions arose as to whether these would be accepted on the market, and whether the increases would make a difference. Analysts at research group Jeffries said that TiO₂ prices were expected to remain under pressure in the first half of the year, adding that the price increases pushed through by pigment suppliers were unlikely to have any bearing on the market.

"Contract structures, adverse weather, demand seasonality and overcapacity continue to hinder price discussions, leaving visibility more opaque than the product itself," the firm said in a research note.

And, despite major pigment producers reporting losses on the back of lower y-o-y prices, UBS analysts outlined in a research note at the start of May that price increases were stimulating confidence in the market and were being successfully implemented, with more price rises expected.

"Reports of improving end use demand, as well as inventories of both finished product and feedstocks falling to below historical levels are encouraging signs for feedstock pricing in H2 2016," the note outlined. However analysts added that no lift is expected in TiO₂ feedstock pricing until 2017.

Positivity in TiO₂ comes with negative news from the zircon industry, with the world’s largest producer, Iluka, announcing a 10% zircon price reduction in April of this year as a result of competitor price reductions of $100/tonne for the April to June period.

MZI Managing Director Trevor Matthews recently told IM that rutile and zircon have entered into a post-correction phase and that the company expects these to return to a long term trend, with moderate improvement into 2016. 

While on the outset Iluka’s announcement may seem to reflect a weakening in zircon prices, the company told IM that the move was an adjustment to its reference price, "which is something that happens from time to time in response to competitive pressures". The company added that the industry is looking for a period of relative stability and that it is confident in a recovery of zircon volumes.

A number of sources recently confirmed to IM that zircon prices have remained stable in recent months, with Iluka’s latest market analysis noting that while zircon sales prices demonstrate a y-o-y decline of 12% for the first quarter of 2016, the past two quarters have seen flat zircon prices, a trend which is expected to continue.

Zircon premium grade (66.5% min ZrO2, bulk FOB) prices from Australia currently stand at $1,000/tonne at the low end of the scale, ranging up to $1,050/tonne according to the IM prices database. Prices for premium grade in the US also range from $1,000/tonne to $1,150/tonne according to the latest figures.

Standard zircon grades (65.5% ZrO2, bulk) stand at between $950-$1,000/tonne FOB Australia and $950-$1,100/tonne FOB US.

Market Outlook

Iluka believes recent 10% price cuts to zircon will not stimulate industry demand and that consumption is stable. And while zircon demand has increased y-o-y in Europe, an overall decrease in sales prices are reflective of a changing market in China, which represents 50-60% of total zircon sales. A decrease in zircon prices reflects China’s unexpected move towards concentrates and tailings.

TiO₂ price increases are a positive sign for mineral sands hopefuls Melior Resources and IRC, both of which shut down mines due to trailing ilmenite prices. Melior believes that it still has a valuable project moving into the future, citing broker price forecasts as bullish into 2018.

Rio Tinto said in November that it would temporarily shutter TiO₂ feedstock production from Fer et Titane in Canada as well as its mineral sands mining operations in southeastern Madagascar.

Mark Davies, Rio’s chief commercial officer for iron and titanium, said there are numerous factors supporting the increase of TiO₂ demand into the future, including increased per capita pigment usage in developing economies in the medium term; expansion
of the Chinese urban middle class driving consumer-led growth; and the eventual stabilisation of demand in developed
markets.

Adding to this, recent reports of limitations imposed on the Chinese TiO₂ industry’s energy consumption could mean the permanent closure of facilities that don’t make the imposed standards.

Despite this optimism in TiO₂, Iluka and specialist investment bank Investec were in agreement in late 2015 that 2016 will bring a tepid year in terms of demand and pricing across the mineral sands market.

Acknowledgements: Murray Lines – Stratum Resources