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Zircon price roars as market tightens

A tight supply-demand market is driving up zircon prices and raising the prospects of restarts from swing producers and renewed activity by juniors.

Zircon prices last boomed in the early 2010s, when they more than tripled from an average US$860/tonne in 2010 to US$2,650/t in 2011, according to yearly prices compiled by the United States Geological Survey.

The boom was short lived. Prices tanked within a couple years, dropping to about US$1,050/t in 2013 and staying near that mark before showing signs of life in 2017.

Iluka Resources Ltd., one of the sector's dominant producers, raised zircon reference prices three times and recently set them at US$1,410/t starting April 1.

What is driving the price?

Kerry Satterthwaite, Roskill's division manager for industrial minerals and chemicals, pointed a finger squarely at supply constraints, highlighting issues in China. She said demand has little to do with it.

"It's not bad, it's flat," Satterthwaite told S&P Global Market Intelligence. "It's just that there's no drama in demand. All the drama is in supply."

By her estimate, China's push to reduce industrial pollution, among other things, has affected about 40% of the country's sizable zircon industry. "The new rules in China are forcing production shutdowns, partly because they are hard to meet and partly because of compliance costs," Satterthwaite said.

Satterthwaite expects the market to stabilize later in 2018 and also said it would be difficult for major miners to ramp up production.

Still, Adele Stratton, Iluka's general manager of finance, investor relations and corporate affairs, said to watch out for small producers in Indonesia. "In the last cycle, those guys brought on about 100,000 tonnes at their peak."

The USGS estimated world zircon production at about 1.3 million tonnes in 2016. Zircon typically comes from mineral sand operations and is often paired with titanium minerals, a market that some are bullish on as well.

Stratton estimated there may be 160,000 tonnes of peak capacity from small producers in Indonesia waiting for the right price to start back up. "We've always said that at around US$1,400, US$1,500 a tonne, these producers will come into the market."

If they do, it will be a good thing, Stratton said. "What you don't want is scarcity and substitution."

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Exploration boost?

The zircon price increase may also boost zircon exploration and the prospects for existing projects. Roskill's Jessica Roberts, manager of its battery and technology materials division, sees it that way. "The recent zircon price increases will no doubt be incentivizing more exploration at the moment, which is good for the industry," she said.

The price rise has already rekindled interest in some zircon juniors such as Titanium Corp. Inc. Throughout most of 2017, its share price rose steadily, more than doubling at one point, although it has since given back some of the gains.

Titanium Corp. has unconventional plans. It aims to take tailings from Canada's tar sands — a mixture of residual bitumen, water and sands — clean them up and produce a salable heavy mineral product that is zircon-heavy. Over the years, it has spent about C$80 million developing the process along with a further C$18 million of government funding.

"We believe our production will be very competitive, if not less expensive to produce than the conventional mines," Titanium Corp. President and CEO Scott Nelson said.

Titanium Corp. has partnered with Canadian Natural Resources Ltd., an oil and natural gas company and a key player in the tar sands, to assess engineering designs in an ongoing C$10 million project half backed by government funds and half by Titanium Corp. and Canadian Natural Resources.

"This is the first big step in commercializing this technology at the first site with Canadian Natural," Nelson said. The testing will help work out the technical kinks and cost effectiveness of the process.

Nelson estimated that tailings from a typical tar sands facility could lead to annual production of 60,000 tonnes of zircon and 25,000 tonnes of titanium products. Preliminary work suggests such a mineral sands facility would cost about C$400 million, Nelson said.

"That's for both the concentrator that recovers the hydrocarbons and the mineral separation plant that produces the final minerals that come out like a nice clean sand," he said.

Tough nut to crack

Titanium Corp. has its work cut out for it to prove that a commercial scale facility can compete with other development projects in mineral sands, of which there are many. For anyone looking to break into the sector, Titanium Corp. included, it will come down to costs, Roberts said.

"As a general answer, I would say that if Titanium Corp. can produce a zircon that meets industry specifications at a price that is comparable with other zircon suppliers, then they should be able to secure customers," she said.

Stratton noted that Iluka has development projects as do other major zircon producers such as Rio Tinto. She also pointed out that beyond development prospects in the hands of producers, many of the projects being shepherded by juniors have been known about for decades but have not gone to production, even though zircon prices have been much higher than they are now.

It is not an easy market to break into, but Roberts and Stratton agreed that good deposits are needed. Roberts, as Stratton, said the "industry has warned for a couple of years that more exploration needs to be carried out in order to replace existing operations that are dealing with declining [heavy mineral] ore grades."

To Stratton, the sector's declining grade is a structural issue and creates an emerging supply gap that underpins rising zircon prices.