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Main Forum•Alkane Resources $40m per year revenue for 15% Zirconium production
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Alkane Resources Ltd has made another significant step forward in the development of the Dubbo Zirconia Project (DZP) through the signing of a non-binding Memorandum of Understanding (MOU) with Mintech Chemical Industries Pty Ltd (Mintech) for a joint venture to process and treat a zirconium chemical intermediate from the DZP to produce zirconium oxychloride (ZOC).
Alkane has signed the MOU through its wholly owned subsidiary, Australian Zirconia Ltd (AZL).
Mintech has plant and equipment at its East Rockingham (Western Australia) site which currently uses ZOC, and previously produced other zirconium chemicals and zirconium dioxide products. Mintech has extensive chemical manufacturing expertise and a ready supply of low cost hydrochloric acid available nearby, which is a key reagent for producing ZOC.
The joint venture will undertake a scoping study to reconfigure the plant to produce 10-12,000 tpa ZOC, which will require half of the uncommitted 50% of zirconium output from the expanded 1 million tpa development scenario of the DZP (see ASX announcement 16 May 2011). At current prices this ZOC production would generate revenues of US$40 million to US$48 million per year which represents about 9 – 11% of the total revenue potential of the project.
Revenue potential for existing MOUs which relate to ZOC now totals around US$100 million to US$120 million per year, representing around 25% of total projected DZP revenue.
The scoping study, to which AZL is contributing $50,000, will include a study of the ZOC market both domestically and overseas, and is expected to be completed within three months.
Alkane believes that the signing of this MOU is another key milestone for the Company and the development of the Dubbo Zirconia Project. Other customer feedback for zirconium chemicals and zirconium dioxide powders from the DZP has been very positive, but the opportunity to produce ZOC has significantly expanded the sales and revenue potential for the project.
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About Zircon and Zirconium Oxychloride ZOC (36% ZrO2) is the primary zirconium chemical used to produce most downstream zirconium chemicals, chemical zirconia (ZrO2), and zirconium metal. Existing ZOC production relies on zircon as the key raw material for downstream zirconium products.
China dominates world ZOC supply with a 90% share of the 200,000 tpa market, which is currently worth around US$800 million. Approximately 40% of Chinese ZOC production is exported as ZOC or downstream zirconium chemicals and zirconia, while the remaining 60% is consumed in China. The total downstream zirconium market worldwide is forecast by TZ Minerals International Pty Ltd (TZMI) to reach 163,000 tpa of zirconia by 2012, which will require 250,000 tpa of zircon feed or approximately 18% of total zircon usage. The zirconium market is the highest growth market for zircon at around 11% per annum, and includes zirconium chemicals, chemical and fused zirconia, and zirconium metal.
At this growth rate, the zirconium market will require one DZP each year (1M tpa ore processed=15,000 tpa zirconia (ZrO2)) to meet demand.
Strong zircon demand, combined with a flat to falling supply outlook, has fuelled a dramatic increase in zircon prices. Contracted zircon prices from mineral sands companies are US$2,300-2,500/tonne in quarter three 2011, while spot prices reached RMB 21,000 per tonne (US$3,200/t) or higher in China (17% VAT included) in early May. This has resulted in ZOC prices increasing by over 285% in the past year to approximately US$4,000/t, FOB China for July deliveries. As ZOC contains 36% zirconia, the current ZOC price equates to approximately US$11,100 per tonne of zirconia for July deliveries.
As a source of zirconium is critical, substitution is least likely in this market, with AZL’s DZP, which is backed by a very long and sustainable mine life, being the only alternative to zircon for the immediate future.
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