Sand miners on the move

A near doubling in the price of Iluka Resources (ASX: ILU) and a sharp upward move by Astron Corporation (ASX: ATR) has restored investor interest in titanium minerals and zircon, but before buying into one of Australia’s oldest mining industries it is wo
9th July 2021
Resources Rising Stars

What’s driven Iluka up from $4.50 at this time last year to $8.60 is a combination of improved demand for what it mines, the potential to add rare earths to its product range, and trouble in the African mineral sands industry.

Astron, a much smaller company, has outperformed Iluka with a 150% share price rise from $0.20 at the start of the year to $0.51 thanks to a corporate reorganisation which will see it quit a Chinese mineral processing business so it can focus on the Donald project in central Victoria.

Other ASX-listed companies with an interest in the titanium minerals and zircon business have been less conspicuous, with the exception of Mineral Commodities (ASX: MRC), which has dropped by 48% since the start of the year thanks to operational issues and management upheaval.

But, overriding everything in the business of titanium minerals and zircon is that while it seems to involve a simple mining process of sifting sand to extract the heavy and valuable minerals it is anything but simple, even if rivals (hard rock miners) call sand mining “gardening”.

Sand mining challenges

The challenge for the sand miners starts with the location of orebodies, generally close to the coast, and the mining process which earned the industry a bad name in the 1950s and 60s because of the damage done to coastal dunes.

Stradbroke Island off the coast of Queensland became an early environmental hot spot which tarnished the reputation of the miners, leaving a history which dogs every new mining proposal and explains why the industry swapped its original name of “beach mining” for “mineral sands mining” before settling on the mouthful of “titanium minerals and zircon”.

Challenges at the start of the mining process are bookended by the challenge of marketing titanium minerals, which are mainly used as pigment in paint, and zircon, which is mainly used as a glaze on ceramics, with major industrial consumers being the only customers and with no “terminal” market such as that enjoyed by copper, zinc and other metals.

The sales process means that a sands miner must line up buyers, and agree on prices, before plunging into a business which can be buffeted by extreme demand (and price) shifts.

Minerals sands market recovery

Like most other commodities, demand for titanium minerals and zircon has recovered strongly after last year’s Covid-caused slowdown. Macquarie Bank has upgraded its zircon price forecast for next year by 14% to US$1,643 a tonne (A$2,188/t) and lifted rutile prices (a primary titanium ore) by 4%.

Supply issues are also benefitting Australia-based sand miners with the Iluka-controlled Sierra Rutile (in the African country of Sierra Leone) on notice that it might be closed or sold later this year because of a poor operational performance, and an even bigger operation in South Africa abruptly closed last month.

Losing supply from Rio Tinto’s (ASX: RIO) mines and processing centre at Richards Bay north of Durban is a major setback for everyone involved, including South Africa itself because the reason for the shutdown is domestic violence, which has morphed into a form of terrorism that included the machine gun assassination of a mine manager.

Small cap miners set to benefit from price rises

If Richards Bay remains closed indefinitely, then the effect on prices for titanium minerals and zircon could be significant and, while Iluka with a market value of $3.6 billion is not a small cap, higher mineral prices could trigger a re-rating of small sand miners, such as Strandline Resources (ASX: STA).

Decades of work lie behind Strandline, which previously traded as Gunson Resources with the Coburn mineral sands project as the primary focus, along with a number of African assets.

High environmental hurdles delayed Coburn and frustrated the previous management team in an example of the challenge in developing a sand mining business close to the coast such as where Coburn is located just south of Exmouth Gulf in Western Australia.

With strong government support and funding in place, construction work is finally underway at Coburn with first ore scheduled for processing in the final quarter of next year.

With sales (offtake) contracts in place for all output, Coburn is expected to generate solid profits over its initial 22.5-year life with investor interest likely to grow as construction milestones are passed leading to an improvement in a lacklustre share price which has been stuck around $0.20 for much of the past 12 months, valuing the company at $212 million.

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