ARR 5.49% 8.6¢ american rare earths limited

Better times in the sand pit

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    Better times in the sand pit

    It’s been a long time since anyone got excited about titanium minerals but when share prices jump by more than 40% in a day it’s a wake-up call too loud to be ignored.
    The mineral sands industry finally looks like fun, once more
    Base Resources, an Australian-listed miner of ilmenite, rutile and zircon in Kenya was the company which delivered that performance on early this week from what appears to be an industry-wide revival triggered by a series of reports pointing to higher prices for titanium dioxide and zircon in China.

    Long neglected because of low prices for its products which are mainly consumed in less than exciting industrial applications such as paint pigment and the glaze on tiles, Base shares rose by A5.5c (US4.c) to A18.5c, a gain of 42.3% with that closing Monday price a 12-month high.

    Looked at over a long-term frame and the rise of Base is even more remarkable, up 825% since it hit rock bottom at A2c just six months ago.

    Base wasn’t an orphan. Other titanium and zircon stocks joined in with Iluka, an industry leader, adding A70c or 10.8% to A$7.16, Mineral Deposits was up A4c (15.7%) to A29.5c and Sheffield Resources was up A4c (7%) to A58c.

    What’s woken the titanium and zircon sector of the mining market is a combination of factors, including production cutbacks doing their work in reducing stockpiles, along with increased demand for paint and ceramics in China thanks to a revival in constructions after the latest bout of government economic encouragement.

    "Having mothballed Jacinth-Ambrosia earlier this year it appears to have engineered a zircon price rebound"

    Those forces lie behind a series of investment bank reports which have enticed investors back into the titanium and zircon sectors, including a study by the Australian firm Ord Minnett which noted “signs of tightening in titanium feedstock markets” and another from Morgan Stanley late last week which said miners and pigment producers were “seeking to lift prices”.

    But, to get a clearer picture of what’s happening it’s important to look back to February when the titanium and zircon industry was in the depths of a downturn.

    Back then, Iluka reacted to an over-supply of its products by mothballing its best mine, the Jacinth-Ambrosia project in South Australia which, at its peak, is capable of supplying between 25% and 30% of global zircon demand.

    The aim, according to an Iluka statement on February 16, was to restore an over-supplied market to balance by forcing the consumption of stockpiled material, which is exactly what’s happened.

    Depending on market conditions, Iluka said, the mine would remain closed for between 18-to-24 months, though, given what seems to be a solid recovery in market conditions, Jacinth-Ambrosia could be back in production sooner than expected.

    Morgan Stanley’s view of the market is based on reports that the US-based titanium dioxide pigment maker, Tronox, was seeking a price increase for zircon sold in China, and that Chinese titanium dioxide manufacturers were continuing to lift prices.

    The changing market conditions were felt in the share price of New York-listed Tronox in late June when the stock jumped from US$3.92 to US$4.33 on June 28, and have continued marching higher over the past two weeks, rising by 10.7% last Friday to close at US$5.05.

    Morgan Stanley said it was doubtful whether customers would accept a proposed zircon rise of US$60 a tonne with US$20/t a more likely increase.

    “Even so, it is encouraging to see another supplier (Tronox) seek to lift prices, an indication that zircon prices may have indeed stabilised, countering early April’s US$100/t price cut,” Morgan Stanley said.

    It’s a similar story in the titanium dioxide market where Chinese pigment producers are reported to have raised prices for the eighth time this year.

    The improvement in market conditions correlates with commentary from major western chloride pigment producers, as outlined in Iluka’s May market briefing paper, which mentioned announcements of US$150/t to US$175/t price increases (around 6%).

    Ord Minnett joined the cheer squad early this week with a sweeping upgrade of the titanium dioxide and zircon stocks it researches.

    The 12-month share price target for Base received an astonishing upgrade from A5c to A24c, and perhaps an even more astonishing decision to retain a ‘hold’ recommendation on the stock which has delivered a share-price performance to rival the best of the red hot gold and lithium sectors.

    “Pigment producers have been increasing prices and sales in the latest quarter, which is likely to improve titanium dioxide feedstock consumption and provide confident for re-stocking,” Ord Minnett said.

    “We have already seen evidence of price rises in lower grade feedstocks, with Base Resources passing on a US$15/t rise for the September quarter.”

    The ball is now in Iluka’s court. Having mothballed Jacinth-Ambrosia earlier this year it appears to have engineered a zircon price rebound.

    In theory, Iluka could reverse the situation just as quickly by re-starting mining operations at the mine but whether that would be in the interests of the company (and the rest of the industry) is a question management will be mulling.
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