The French have had their way with Melbourne’s mineral sands group Mineral Deposits Ltd (MDL).
MDL put up a good fight. But in the end, all it took was a derisory increase by Eramet in its hostile low-ball bid of $1.46 to $1.75 a share to win the day.
The increased offer was well short of the independent valuation commissioned by MDL of $2.04- $2.52, and it goes without saying Eramet is not paying $1.75 because it thinks that is all MDL is worth.
So we have another example of institutional investors selling off mining assets too cheaply, with short-termism again reigning supreme.
MDL is Eramet’s joint venture partner in a mineral sands mine in Senegal, which is integrated with a titanium and iron ilmenite upgrading facility in Norway.
While the joint venture is long in ilmenite, which is shipped off to Norway, it is also a handy producer of zircon (an opacifier in ceramic glazes) which is shipped to global customers.
Today’s interest is in zircon. After peaking at $US2,800 a tonne in June 2011 (spot), the subsequent demand destruction drove zircon back to $US900/t by the end of 2015.
Zircon has been on the tear ever since. One of the legacies of MDL’s valiant but failed defence against the French was its commissioning of a mineral sands market update by respected industry consultant TZMI.
A handy bit of work it was too remembering that the mineral sands market is as opaque as markets come. The following is what TZMI said about the zircon market:
“Supply remains the greatest cause of uncertainty in the global zircon market, as it is not obvious where future supply will be sourced to meet the ongoing demand requirements of the sector.
“Given the current rate of demand growth in the sector, driven predominantly by the unprecedented industrialisation currently underway in China, and to a lesser extent in India, significant additional supply from new projects will be required to avoid the supply gap from growing in to a larger deficit.”
Last year, there were four consecutive price increases for zircon amounting to $300/t, or 30%. There have been more price increases in 2018 of about $US180/t-$US300/t, according to TZMI.
The net result of that is that reference prices posted by two of the biggest producers, Rio Tinto and Iluka, have increased to $US1,500/t and $US1,410/t (CIF China) respectively. They are actually lagging price increases by competitors, so a move higher still by them to $US1,600/t levels later in the year would not surprise.
Two juniors which could be worth watching are Strandline (STA:14c) and Image (IMA:12c). Read more +
