Barry FitzGerald: The non-Iluka sands that could make life a beach
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Mineral sands lack the sex appeal of the base and precious metals sectors of the ASX.
That’s mainly due to the opaqueness around the pricing of the material which generally speaking, either gets gobbled up by the titanium pigment market as rutile, or in ceramics as zircon.
Part of the problem for investors is that there is no terminal market like the LME, or an easily accessed pricing index, for mineral sands like there is in most other mineral commodities.
So the price ups and downs can’t be easily followed. But tracking the sector through industry and analyst commentary can be worthwhile from time to time.
One of those moments has just arrived, with broad agreement emerging that rutile and zircon prices are on the up in response to COVID stimulus packages spurring greater economic activity at a time when under-investment in new mines is beginning to bite on the supply side of things.
Given the recent turmoil in the broader commodities space, it seems that the mineral sands sector could provide a safe harbour.
That outlook was captured in a research note last week by Macquarie’s commodities desk on the king of the mineral sands sector on the ASX, Iluka (ASX:ILU). Macquarie rates Iluka as an “outperform”, with a 12-month share price target of $8.60 – 8% higher than Friday’s close.
No interest in that from Garimpeiro. But what was of interest was the potential for a leveraged response in the share prices of the smaller mineral sands players on the ASX in response to Macquarie’s call that strong demand signals were emerging to push mineral sands prices higher.
Macquarie upgraded its zircon price forecasts by 14-19% over the next five years to reflect “strong demand and the recent rise in spot prices”.
“Rutile prices are set to benefit from delayed and suspended projects like Sembehun (an Iluka rutile project in Sierra Leone).”
It sees the zircon price rising for premium material from US$1,360/t in 2021 to US$1,530t come 2025. For rutile, the forecast increase is from US$1,250t to US$1,375/t.
Garimpeiro has taken that outlook and screened the non-Iluka mineral sands players on the ASX to come up with some names that stand to benefit from the buoyant outlook as the world gets busy again painting things, and laying ceramic tiles.
The list is far from exhaustive but does give a feel for some of the options out there.
Strandline (ASX:STA, 21.5c): An emerging competitor to Iluka – unless Iluka takes it over – from its zircon-rich Coburn project in WA. It recently completed the debt funding for the $300m development, one set to produce about 5% of global zircon demand and chloride ilmenite (a low grade rutile) for the pigment market.
Sovereign Metals (ASX:SVM, 63c): Has taken off from 19c in June last year to 63c on excitement over its Kasiya rutile discovery in landlocked Malawi. The project was recently confirmed as the second biggest rutile dominate deposit in world, and it is still growing. Canada’s savvy Sprott Capital recently upgraded its share price target from 95c $1.20 a share.
Image (ASX:IMA, 17c): Became a producer from its Boonanarring in WA in 2018. It is one of the highest grade and zircon-rich projects around. Paid a maiden dividend of 2c a share in April this year and posted a net profit after tax for 2020 of $24.8m. It is looking to develop another mine from its portfolio of 12 projects.
Diatreme (ASX:DRX, 2.2c): Has its hands full moving to develop its Galalar high purity silica sand project in north Queensland for the solar PV market but also owns the shovel ready Cyclone zircon project in WA where it is talking to a “range of potential project participants’’ to create some value.