Special Report: A supply deficit could emerge in the mineral sands market, with no new major projects in construction, supporting further growth in already healthy prices.

The two major mineral sands streams are the titanium minerals, including ilmenite and rutile, and zircon.

Titanium minerals are mostly used to make ‘pigment’, which goes into paint, plastics and a number of very small specialist applications, including inks.

Rutile is a high-grade titanium mineral which currently sells for around $1,200/tonne. The lower grade ilmenite is about $200/t.

Zircon – currently about $1,300/t — is mostly used in ceramic tiles, but also things like precision casting for automotive parts and refractories for glassmaking.

If you boil it all down, the two big drivers for mineral sands demand would be paint, plastics and tiles, Stephen Hay, marketing manager at minerals sand producer Base Resources (ASX: BSE), says.

“People are painting houses generally at the same time they are tiling bathrooms,” he told Stockhead.

“Beyond the residential market there’s big commercial markets for paint and tiles – everything from airports to train stations, large commercial buildings.

“As a general statement, there is quite a close correlation over the long term to the demand for mineral sands products and GDP [gross domestic product] growth.”

GDP – the sum of all goods and services produced — is commonly used to track the health of an economy.


Riding the COVID wave

This correlation with GDP is why COVID-19 was expected to have a significant negative impact on minerals sands demand.

But that is not what happened through the first half of 2020.

“There were some very pessimistic forecasts around March and April, along with most industries,” Hay says.

“But the interesting thing, with pigment in particular, is that demand held up better than expected.

“That’s mainly because demand for architectural paint for buildings, particularly housing, actually increased.

“People have been working from home, spending a great deal of time at home – and have a bit more disposable income because they are not travelling to work or going on holidays, or eating out as much.”

Plastics is also a big user of pigment, and there has also been good demand growth for plastics going into packaging, Hay says.

“Everyone is home doing online shopping which requires packaging, and plastics going into medical equipment and PPE has also seen strong demand,” he says.

“Overall, what we have seen is that demand for pigment, and in turn the feedstocks that we supply to the pigment producers, has actually held up better than was originally forecast.”

Importantly, growth from those sectors has partially offset the big drop seen in industrial applications – things like automotive coatings.

This culminated in Base Resources enjoying a very good FY20, with the large Kwale operation in Kenya achieving the upper end of production guidance and improving product prices exceeded management expectations.

“We finished the year with a fair amount in the bank, and we are paying out a dividend at the moment from that,” Hay says.

“The balance sheet is looking very healthy right now.

“The other thing we are seeing now, as countries come out of lockdown, is end demand for the industrial applications like automotive coming back.

“The pigment producers who are our customers seem to be a lot more optimistic now than what they were three months ago. Although we must bear in mind that things can change very quickly at any time in the current global environment.”


A strong outlook for mineral sands

Mineral sands demand will continue to grow around that GDP rate moving forward. To fill that demand more supply will need to come into the market.

Production from existing mineral sands mining operations is at best staying flat, but most are starting to diminish as orebody grades fall away.

Existing sources of supply will dry up over the next couple of years, Hay says, and at the moment there are no new major projects in construction.

“There is real potential within the next 3 to 4 years that we could see substantial deficits across the board, in titanium products as well as zircon,” he says.

“We could see some spiking in prices over that period.”

If demand continues its recovery trend the fundamentals could be similar to the period following the global financial crisis, when there was a very steep stimulus-driven price spike.

“Like now, there was almost no investment in new projects, which meant no new supply coming through the pipeline at a time when demand was really taking off,” Hay says.

“That big deficit in supply saw prices hit very high levels — rutile got up to the high $2,000’s/t, zircon was around $3,000/t and ilmenite over $400/t.

“Prices like that had never been seen in the industry before.”


Meeting imminent demand

But a good project can weather all storms – not just a high price environment.

“We are really fortunate that our project in Kenya is right at the low end of the cost curve, so our profitability has remained really strong, even through the downcycle we had a few years ago,” Hay says.

“We are doing quite well at current prices.”

Base also has a second mineral sands asset in its stable – the Toliara project in Madagascar.

Toliara is expected to have a 33-year mine life. and fits the same ‘large scale, low cost, high return’ mould.

“That gives us a lot of confidence that we can ride through all the cycles, and confidence for debt providers and equity providers that this is good project to invest in,” he says.

“We think the fundamentals of the Toliara Project are superior to any other near term development project out there. We are very well placed for the potential upswing.”



This story was developed in collaboration with Base Resources, a Stockhead advertiser at the time of publishing.

This story does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.