Sibelco’s Australian QMAG magnesite and
magnesia operation is unique in a country that is typically
seen as a mining nation. This is because in addition to
Sibelco’s 600,000 tonnes of magnesite capacity,
the company also has around 300,000 tonnes of caustic calcined
magnesia (CCM) capacity, 100,000 tonnes of dead burned magnesia
(DBM) capacity and 30,000 tonnes of electrofused magnesia (EFM)
capacity (DBM and EFM use CCM as a feedstock).
To produce magnesia or CCM, Sibelco uses natural gas to heat
raw material to around 1,000°C, while to produce DBM and
EFM, temperatures of around 2,000°C and >3,000°C
respectively are used.
While labor costs play a large part in the lack of
manufacturing industry in the country, the high cost of gas is
usually the largest factor. Energy prices in Australia are high
due to huge export demand, with overseas companies willing to
pay a premium over domestic users. And so, for a company that
relies heavily on gas supply, it is surprising to see it based
One reason for this is the very high-quality nature of the
deposit it relies upon. According to the Queensland state
government, the Kunwarara deposit in central Queensland is
the largest known source of ultrafine-grain cryptocrystalline
to microcrystalline nodular magnesite in the world.
Magnesite in Australia
Magnesite was discovered at Kunwarara in 1985 by Queensland
Metals Corp (QMC), which quickly recognized the
deposit’s refractory grade potential. Kunwarara
produced its first magnesite in 1991 under QMC, later renamed
Queensland Magnesia Ltd (QMAG). In 2012, QMAG was purchased by
Sibelco, in an acquisition underlining the
company’s long-term optimistic view of the market.
QMAG commenced mining at the Yaamba magnesite deposit in
Together, the Kunwarara and Yaamba mines produced magnesite
worth just over A$15.4 million ($11.2 million) in the 2016-17
financial year. Now if this sounds low to you,
that’s because it is. In the 2015-16 financial
year, magnesite production was worth A$34 million, while a year
earlier it was worth A$45.1 million.
Likewise, production fell from
658,562 tonnes in 2014-15, to 462,901 tonnes in 2015-16, and
207,603 tonnes in 2016-17. This corresponds with a fall in
magnesia prices in China from an average of $466.15 per tonne*
in 2014 and $408.53 per tonne in 2015, to $377.50 per tonne in
2016. Chinese prices then started to pick up in 2017.
Now, prices for EFM and DBM have increased. While production
numbers are not known for 2017-18 or 2018-19, market sources
have told Fastmarkets IM that QMAG is now running at full
capacity in order to keep up with strong demand coming out of
Coincidentally, Sibelco is now looking to sell its QMAG
operation, perhaps in an attempt to capitalize on high prices
and maximize its value to potential buyers.
Unfortunately, little is known about the sale, and details
over this year’s prices achieved by QMAG are
impossible to gather as legal processes around the sale of the
company shroud it in opacity.
How did we get here?
2015 was a very different year for magnesia producers, with
one European miner telling Fastmarkets IM at the time that "it
is very hard to make money now, with prices this low".
The comment came at a time where Chinese magnesia products
were flooding European markets, coinciding with a period of
falling demand from steel makers.
That year, Fastmarkets IM reported that the Chinese
government was seeking to curb what it saw as "wasteful and
inefficient exploitation of China’s high-grade
magnesite reserves, which are limited in number and size", and
"although the Chinese government is reluctant to intercede in
the domestic magnesia industry, its hand has been forced by the
increasingly cannibalistic nature of the business".
While no mention was made of the environmentally destructive
nature of the "increasingly cannibalistic" business practices,
it would be the first sign of things to come.
Fast forward to 2016 and prices for both EFM and DBM
continued to struggle as a result of the downturn in their main
end market, steel refractories. The CCM segment fared better,
owing to its diversified applications.
At the same time, stricter environmental regulations were
taking hold, with major shutdowns taking place in the Chinese
provinces of Henan and Shanxi in the latter part of the year,
spurred by growing concerns over air pollution.
Shutdowns in Haicheng, the major production hub for magnesia
in China, would not take place until 2017. In November of this
year, Fastmarkets IM reported that the Haicheng government had
released plans to restart magnesite mining in the region by
Because of the major production capacity of this region, its
restart could impact magnesia prices, and therefore
QMAG’s Chinese demand, as well as its
prospective company sale price.
*This is the DBM 97.5MgO fob price.