[miningmx.com] — THE upturn in the titanium market, where prices are now the best in more than 20 years, may save Exxaro’s KZN Sands operation from closure in 2012.
At stake are some 4,000 jobs in the Empangeni region of KwaZulu-Natal (KZN) linked either directly or indirectly to the twin smelter operation, which produces titanium slag from heavy mineral sands.
The smelter is currently supplied with mineral sands from Exxaro’s nearby Hillside mine, which will be mined out in the first quarter of 2012.
A new mine to be developed, called Fairbreeze, was to replace production from Hillside. However, Exxaro canned the project last year because of poor returns forecast on the investment.
“We were not prepared to accept single-digit returns on the investment required, which was estimated at between R1.1bn and R1.4bn, given the better returns on offer from other divisions of the group,’ said financial director Wim de Klerk.
But De Klerk said the price of pigment – which requires titanium and is used widely in the manufacture of paint – had moved above $2,000 per tonne for the first time in more than 20 years.
The outlook is for further price increases because of rising demand, which will not be matched by rising supply.
De Klerk said: “For the first time in many years, we are encouraged by the supply/demand outlook. The years of underinvestment are finally catching up to the industry.
“We have just successfully commissioned our pigment expansion plant in Australia and it could not have been timed better.
“Hopefully we will soon see price increases coming through on the feedstock side as well.’
He added that because of the developing situation in the market, Exxaro had been approached by a number of feedstock customers requesting that the KZN Sands plant not be closed down because of their concerns regarding future supply.
De Klerk said Exxaro was now looking at various options regarding the future supply of titanium sands to the KZN smelters, as well as financial options to keep it operating.
He said these included possible partnerships with customers who wanted to buy the titanium slag it produced, as well as long-term pricing arrangements to guarantee the profit margin Exxaro required to keep it going.
De Klerk declined to specify the profit margin Exxaro wanted, because of negotiations about to take place. He repeated the assessment made last year that the group was not prepared to run the operation for a “single-digit margin’.
Supply options included completing the development of the Fairbreeze mine; buying in ilmenite from the Moma mine in Mozambique or suppliers in China or India, or stepping up ilmenite output from the Namakwa Sands operation to feed KZN Sands.
“We may end up doing a combination of all three,’ he said.
De Klerk said: “We need to take a decision as soon as possible because even if we decided to act tomorrow, the KZN smelters are still going to run short of feedstock at some point.’
He estimated the cost of completing the Fairbreeze mine at “between R1.1bn and R1.4bn, plus a year’s inflation’.
Deutsche Bank analyst Tim Clarke queried Exxaro CEO Sipho Nkosi on the wisdom of investing in Fairbreeze, when higher returns were offered by Exxaro’s base metal division. Clarke commented that “it was scary you might put a significant amount of money into Fairbreeze’.
Nkosi replied: “You must remember this is a big business which is part of our corporate DNA.
“It has very low margins today but, if you go back 12 years or so, coal was a dog. There was a time when the former Iscor seriously looked at getting out of coal. Iron ore was in a similar position a few years back as well.
“So before taking a final decision on KZ Sands, it’s important that we think twice. There is also the issue of the effect of our decision on the people of KwaZulu-Natal because, if we close it down, some 4,000 jobs will be affected in total.
“We are very mindful of that in our licence to operate.’