Grande Cote is a world class ore body that extends more than 100 kilometres and boasts high quality zircon and ilmenite.
Growing demand for mineral sands means production from Grande Cote is likely to occur in a period of rising prices, boding well for future profitability.
The market has acknowledged this, and as a result MDL has been one of the hot stocks in recent times.
Although capex costs at the project are expected to be significant, MDL’s cash balance and JV with Eramet puts it in a good position to meet funding requirements.
Magnificent Mineral Sands
The mineral sands industry is expected to boom in coming years due to a widening supply deficit.
Global zircon supply is forecast to shrink over the next decade, which will coincide with soaring demand from high growth countries such as China.
Zircon demand is driven predominantly by its use in ceramics. With China modernising its economy, the demand for ceramics, such as tiles, is expected to surge.
This is likely to drive significant zircon price growth, which will benefit MDL as it begins production in 2013.
The supply deficit will take time to narrow given the more than seven years required to bring projects from exploration to commissioning.
Titanium is anticipated to follow a similar path to zircon, in that demand is likely to be fuelled from its use in paint, plastics and paper – key ingredients for China’s growing economy.
Tizir is born
On 28 July the group formed a 50/50 JV with French-based miner, Eramet, known as Tizir Limited.
Under the JV, Mineral Deposits will contribute its 90% interest in Grande Cote (Senegal’s government owns the other 10%), with Eramet contributing its Tyssedal titanium and iron plant in Norway, along with $30 million in cash.
The JV was crucial for MDL as it secures off-take for the majority of Grande Cote’s ilmenite. The ilmenite will be used in the production of titanium feedstock at the Tyssedal plant.
The agreement also secures additional titanium supply for Tyssedal, giving it the capacity to meet growing demand from pigment producers.
Therefore it appears the JV is a win/win for both companies.
Grande Cote is grand
The Grande Cote project is strategically placed in Senegal, located not too far from the Dakar coast. This reduces the time it will take to transport the minerals from the mine separation plant to the port for shipment.
The lack of significant vegetation and overburden also allows for an efficient processing of the mined ore.
Thus when production begins MDL will be operating towards the lower end of its cost curve, giving it a significant competitive advantage.
Grande Cote has the potential to be a Tier 1 asset, with an operating mine life of 25+ years, and expected annual production of 85,000 tonnes of zircon and 575,000 tonnes of ilmenite.
These output estimates will amount to approximately 7% of global supply, putting MDL on track to become one of the world’s bigger producers.
Cash is king
MDL is in sound financial shape, having secured US$136.2 million in a capital raising in June. The raising brought the group’s cash balance at the end of June to US$173.3 million.
Moreover, the company has no external borrowings.
Although Grande Cote requires approximately US$516 million in capex requirements, Mineral Deposits’ array of financing options, including the contribution from Eramet, will help ensure sufficient funding for the project.
Mineral sands producers stand to reap significant benefits from China’s voracious demand for resources.
The supply deficit is expected to linger for a while yet, putting MDL in line to achieve major price increases at the same time it begins production.
Grande Cote appears to be a long-life, low-cost asset for MDL, thus giving it a competitive advantage in the mineral sands industry.
Importantly, the company is in sound shape with cash in the bank, no external debt, and a JV with Eramet that has secured off-take for its ilmenite.
Therefore the future appears bright for MDL, and it will be one of the stocks to watch in coming months.