ZIRCON: ANNUAL REVIEW, TREND ANALYSIS AND LONG-TERM THEMES

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1 ZIRCON: ANNUAL REVIEW, TREND ANALYSIS AND LONG-TERM THEMES Ed Barlow TZMI.COM

2 About TZMI TZMI provides operational and technical expert advice on many areas including: Mergers and acquisitions Market assessments and industry analysis Due diligence Pre-feasibility studies including preliminary capital and operating cost estimation Competitive cost analysis and benchmarking TZMI is a global, independent consulting and publishing company with offices in Australia, the US, Europe, Africa and China. The strength of TZMI s consulting services stems from extensive practical experience in the mineral sands, titanium dioxide and coatings industries and from a comprehensive database, which has been built up over many years. TZMI has proven expertise gained from our consultants having many years of direct operating experience in the industry in chief executive, senior operational, analytical and marketing roles. TZMI s publications and data services support the consulting activities and ensure up-to-date, high quality and comprehensive data, analysis and information across the mineral sands, zircon and Ti0 2 pigment industries. Technical reviews and audits Resource assessments Physical separation testwork Flowsheet development Customised data analysis and reporting TZMI CONGRESS 2016 ZIRCON: REVIEW, TRENDS AND LONG-TERM THEMES 2

3 Presentation outline Global supply-side analysis Sector and regional demand Market trends Long-term themes TZMI CONGRESS 2016 ZIRCON: REVIEW, TRENDS AND LONG-TERM THEMES 3

4 TZMI.COM SUPPLY SIDE ANALYSIS TZMI CONGRESS 2016 ZIRCON: REVIEW, TRENDS AND LONG-TERM THEMES 4

5 Global supply-side analysis Global zircon supply by key producing country: tonnes Eastern Europe South America China Southeast Asia 1,750 1,626 North America Australia South Asia Sub-Saharan Africa 30 1, % 1, ,239 1,229 1, ,187 1, , , , global output increased 5% in 2015 to an estimated 1.19 million tonnes. Zircon production for 2016 expected to grow by 3.6%, putting it on par with 2012 and approximately 25% lower than the 2011 peak. Big increase in supply via concentrates versus primary sand TZMI CONGRESS 2016 ZIRCON: REVIEW, TRENDS AND LONG-TERM THEMES 5

6 Supply: concentrates versus primary sand Zircon supply by material type Q tonnes 1,323 1,626 1,239 1,010 1,129 1, % 90% 88% 85% 88% 88% 86% 83% Primary sand 10% 12% 15% 12% 12% 14% 17% Concentrates Q3 YTD primary sand CAGR is -3% whereas concentrate supply grew by 4% CAGR in the same period. Most concentrate supply comes from producers of zircon sand. But the growth in concentrates is from new (non-traditional) sources. TZMI CONGRESS 2016 ZIRCON: REVIEW, TRENDS AND LONG-TERM THEMES 6

7 Supply: Traditional versus Non-traditional sources Zircon supply by source type tonnes 1,323 1,626 1,239 1,010 1,129 1,187 1,229 1, % 80% 76% 72% 69% 74% 69% 66% 66% Traditional 20% 24% 28% 31% 26% 31% 34% 34% Non-traditional Traditional sources are Big three and zircon sand mines operating before 2013 Non-traditional sources are concentrates (ex-big 3) plus new sources TZMI CONGRESS 2016 ZIRCON: REVIEW, TRENDS AND LONG-TERM THEMES 7

8 Same chart - out to 2020 Zircon supply by source type tonnes 1,323 1,626 1,239 1,010 1,129 1,187 1,229 1,229 1,209 1,124 1, % 80% 76% 72% 69% 74% 69% 66% 66% 64% 62% 62% Traditional 20% 24% 28% 31% 26% 31% 34% 34% 36% 38% 38% Non-traditional Non-traditional share of the market will account for nearly 40% by the end of the decade Note the fact that total supply is expected to decline 2020 production is 185,000 tonnes lower than 2017 TZMI CONGRESS 2016 ZIRCON: REVIEW, TRENDS AND LONG-TERM THEMES 8

9 Regional supply: expected declines with no new projects 000 tonnes Multi-regional zircon production (existing operations): ,078 1, Australia South Africa Americas Europe TZMI CONGRESS 2016 ZIRCON: REVIEW, TRENDS AND LONG-TERM THEMES 9

10 Asian production flat 000 tonnes Asian zircon production (existing operations : Asia TZMI CONGRESS 2016 ZIRCON: REVIEW, TRENDS AND LONG-TERM THEMES 10

11 African production growing (then falling) 000 tonnes Africa (ex-sa) regional zircon production (existing operations): , , , , ,000 98,599 45,000 60,496 53,694 Africa (ex-sa) 19,000 18, TZMI CONGRESS 2016 ZIRCON: REVIEW, TRENDS AND LONG-TERM THEMES 11

12 Global supply to 2020: no new projects 000 tonnes Global zircon supply (existing operations): ,626 1,323 1,239 1,010 1,129 1,187 1,229 1,229 1,209-5% 1,124 1,044 Global TZMI CONGRESS 2016 ZIRCON: REVIEW, TRENDS AND LONG-TERM THEMES 12

13 What happens to the market after 2017? TZMI CONGRESS 2016 ZIRCON: REVIEW, TRENDS AND LONG-TERM THEMES 13

14 TZMI.COM SECTOR AND REGIONAL DEMAND TZMI CONGRESS 2016 ZIRCON: REVIEW, TRENDS AND LONG-TERM THEMES 14

15 Global demand has been flat since tonnes 4% -24% 26% 1,500 1,434 1,383 1,000 1,100 1,087 1,050 1,091 1,081 1, f Other Zirconia & Zr Chemicals Foundry Refractory Ceramics TZMI CONGRESS 2016 ZIRCON: REVIEW, TRENDS AND LONG-TERM THEMES 15

16 Inventories have risen 000 tonnes 600 Total Inventory Surplus/deficit Normal Inventory TZMI CONGRESS 2016 ZIRCON: REVIEW, TRENDS AND LONG-TERM THEMES 16

17 Regional demand: China Ceramics Refractory Foundry Zirconia & Zr Chemicals Other TZMI CONGRESS 2016 ZIRCON: REVIEW, TRENDS AND LONG-TERM THEMES 17

18 Regional demand: Europe Ceramics Refractory Foundry Zirconia & Zr Chemicals Other TZMI CONGRESS 2016 ZIRCON: REVIEW, TRENDS AND LONG-TERM THEMES 18

19 Regional demand: Americas Ceramics Zirconia & Zr Chemicals Refractory Other Foundry TZMI CONGRESS 2016 ZIRCON: REVIEW, TRENDS AND LONG-TERM THEMES 19

20 Regional demand: Asia-ex China Ceramics Zirconia & Zr Chemicals Refractory Other Foundry TZMI CONGRESS 2016 ZIRCON: REVIEW, TRENDS AND LONG-TERM THEMES 20

21 Regional demand: Middle East + Africa 71 Ceramics Refractory Foundry Zirconia & Zr Chemicals Other TZMI CONGRESS 2016 ZIRCON: REVIEW, TRENDS AND LONG-TERM THEMES 21

22 Global demand bottoms out in ,383 1, Ceramics Zirconia & Zr Chemicals Refractory Other -4% Foundry +4% 1,224 1,179 1,132 1,087 1,050 1,091 1,081 1,056 1, TZMI CONGRESS 2016 ZIRCON: REVIEW, TRENDS AND LONG-TERM THEMES 22

23 TZMI.COM MARKET TRENDS TZMI CONGRESS 2016 ZIRCON: REVIEW, TRENDS AND LONG-TERM THEMES 23

24 In 2017 We hit peak supply for existing projects Demand starts growing again But Inventories remain high New supply is coming TZMI CONGRESS 2016 ZIRCON: REVIEW, TRENDS AND LONG-TERM THEMES 24

25 Supply-demand 000 tonnes 1,800 Recently commissioned production Existing production Underlying demand 1,600 1,400 1,200 1, f 2017f 2018f 2019f 2020f TZMI CONGRESS 2016 ZIRCON: REVIEW, TRENDS AND LONG-TERM THEMES 25

26 Limited need for new supply before 2020 Zircon dominated projects need low inducement cost to enter before 2020 But New supply from titanium feedstock projects required before 2020 is almost inevitable TZMI CONGRESS 2016 ZIRCON: REVIEW, TRENDS AND LONG-TERM THEMES 26

27 New projects with zircon dominant revenue streams US$/tonne zircon 15% IRR 2,000 1,500 1, Cumulative zircon ( 000tonnes) TZMI CONGRESS 2016 ZIRCON: REVIEW, TRENDS AND LONG-TERM THEMES 27

28 Supply-demand with new projects 000 tonnes 1,800 1,600 Underlying demand Possible new supply Recently commissioned production Existing production 1,400 1,200 1, f 2017f 2018f 2019f 2020f TZMI CONGRESS 2016 ZIRCON: REVIEW, TRENDS AND LONG-TERM THEMES 28

29 Demand Production Inventories Market forces in 2016 TZMI CONGRESS 2016 ZIRCON: REVIEW, TRENDS AND LONG-TERM THEMES 29

30 Demand Production Inventories Market forces in 2017 TZMI CONGRESS 2016 ZIRCON: REVIEW, TRENDS AND LONG-TERM THEMES 30

31 Production Demand Inventories Market forces in 2018 TZMI CONGRESS 2016 ZIRCON: REVIEW, TRENDS AND LONG-TERM THEMES 31

32 Demand Inventories Production Market forces in 2019 TZMI CONGRESS 2016 ZIRCON: REVIEW, TRENDS AND LONG-TERM THEMES 32

33 Production Demand Inventories Market forces in 2020 TZMI CONGRESS 2016 ZIRCON: REVIEW, TRENDS AND LONG-TERM THEMES 33

34 What happens after 2020? TZMI CONGRESS 2016 ZIRCON: REVIEW, TRENDS AND LONG-TERM THEMES 34

35 TZMI.COM LONG TERM THEMES TZMI CONGRESS 2016 ZIRCON: REVIEW, TRENDS AND LONG-TERM THEMES 35

36 Key long term themes Potential supply shortages: most acute in the Americas but Asia will need new supply Where are the resources for the 2020s? Zircon as a co-product: will it always be locked into a TiO 2 cycle? How and who balances supply and demand? Form versus function: the rise of zircon chemicals and what it means for grade The need for premium zircon: availability is declining, are needs declining or ongoing? TZMI CONGRESS 2016 ZIRCON: REVIEW, TRENDS AND LONG-TERM THEMES 36

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