Zirconium: Not Just Bling

By Tom Vulcan

For all financially hard-pressed, would-be bridegrooms, 1976 was a signal year.

Diamonds may well be a girl's best friend, but they can be anathema to the bank balance. From that year on, for all those men wishing to present their future wives with a stunning engagement ring, there was an affordable alternative (disclosed or otherwise) to that traditional diamond—cubic zirconia. (The newspapers at the time were jammed with full-page spreads extolling its virtues. And you can still sometimes see the odd ad around.)

Cubic zirconia (CZ), or the synthesized cubic crystalline form of zirconium oxide, comes in pretty much any color and is optically flawless. And since it is so cheap to produce, size is not a problem; loose stones, in a variety of shapes, sizes and colors, can be had at prices ranging from $100-$300 per carat.

And the great thing is that, to the untrained eye, CZ looks like the real McCoy.

Not Just A Girl's Second-Best Friend

Zirconium (atomic number 40) itself, of which CZ is just one form of oxide, is a soft, shiny, silvery-white metal with a very high melting point. And while it has a number of important uses in metallic form, zirconium is never found in nature as a free metal. Among the metals in the Earth's crust, it is by no means rare, being three times more abundant even than copper.

Quite apart from its use in simulated diamonds, which consumes a tiny amount of the element, zirconium and its compounds have a wide variety of other, much more important, uses. These range from its use in the ceramic frits used to make sanitaryware (bidets, lavatory bowls and sinks), tiles and tableware, to its use, in metal form, in nuclear fuel rods and specialty alloys. In chemical compounds and as a metal, zirconium is also to be found in anything from auto catalysts and fuel cells to abrasives, and from electronics to high-performance industrial alloys.

Although found in a number of other minerals, the two main sources of zirconium are the minerals zircon (zirconium silicate—ZrSiO4) and baddeleyite (another form of zirconium oxide—ZrO2). Zircon sand, however, is by far the primary mineral source for zirconium, whether it ends up as the metal, an oxide or in a chemical compound.

Zircon sand is usually recovered from mineral sands, either as a principal product or as a by-/co-product, for example, of titanium mineral production. (Mineral sands usually refer to "concentrations of heavy minerals (HM) in an alluvial (old beach or river system) environment" and are mined either dry or wet, using the likes of bucket wheels, bulldozers, front-end loaders, scrapers and suction pumps.)

Source: Iluka Resources Limited

Whence The Zirconium Concentrates?

The U.S. Geological Survey (USGS) identifies just three countries (Australia—42%; South Africa—30%; China—12%) as accounting for some 84% of the world's zirconium mineral concentrates production in 2008.

* Figures withheld Source: USGS

While the vast majority of these concentrates are derived from mineral sands operations, Kovdorsky GOK's mine on Russia's Kola Peninsula actually produces baddeleyite as a by-product of its apatite and magnetite operations.

Domestic zircon production in the U.S. comes from the mining of heavy minerals at two locations: at Stony Creek in Virginia and at Starke in Florida. Although figures are not readily available for the sum total of zircon production in the U.S. (figures for DuPont's zircon production in Florida are not available), Iluka Resources Inc. (owned by Perth-based Australian company Iluka Resources Ltd (Iluka)) produced some 70,000 tonnes of zircon from its heavy mineral sands operation in Virginia.

In addition to those countries already producing zircon, there are a number of other countries that are now home either to new zircon projects under construction or heavy mineral exploration for zircon—either as a primary product or as a by-product. (It remains to be seen, however, if all of them are actually commissioned and go into production.)

These include:

Stage

Project/Country

Developing Company

Under Construction

QMM Project/Madagascar

Rio Tinto

BFS* Complete

Grande Côte Zircon Project/Senegal

Mineral Deposits Limited

Kwale/Kenya

Tiomin Resources Inc

Corridor Sands/Mozambique

BHP Billiton

Fort McMurray/Canada

Titanium Corporation

* Breadth-First Search

In addition, Kenmare is now producing zircon (among other things) from its Moma mining operation in Mozambique. And there are a number of further projects, too, in countries already producing the mineral to expand production in those countries.

Whither the Zircon?

The two largest consumers of zircon by region in 2007 were Europe and China, both accounting for some 30% each of global demand that year. And, according to Iluka, over the 10-year period from 1998-2008, China's share of global zircon consumption has grown from approximately 16% to more than 30% in 2008. Between 2004 and 2008, the compound annual growth rate of all Chinese imports of zircon was 15.8%.

Source: TZMI

Growth in Zircon Consumption

Source: Iluka estimate for 2008 and its analysis with input of TZMI-sourced data

In the market globally, apart from the significant increase in demand from China (and a noticeable increase in demand from India) over the past several years, there has been an increasing demand from other developing economies and regions. At the same time, demand from the developed economies and regions has remained relatively steady. Whether developing, or developed, economy or region, the most important end uses of zircon remain ceramics, zirconia and zirconium chemical compounds.

In January 2008, Iluka commissioned a report from consultants TZMI that analyzed the consumption trends (from 1990, and projecting forward to 2015) for zircon both by region and end use and produced two charts to illustrate these. They are indicative both of the historical growth in the market over the last nearly 19 years and TZMI's expectation at that time of significant future growth in the market.

Zircon - Regional Consumption Trends (1990-2005)

Source: TZMI

Zircon - End Use Consumption Trends (1990-2005)

Two End Uses Expanded Upon

Two particular end uses of zircon merit a little further examination—in ceramics and in the nuclear industry.

Ceramics

The main use of zircon is in ceramics and, in line with the figures for the global end use consumption of zircon, 54% of China's total zircon consumption goes into ceramics. (Interestingly, however, its next-largest use in China—some 27% of the country's total consumption—is in zirconia and chemicals, as opposed to a worldwide figure of some 15%.)

China, therefore, produces a large number of tiles and ceramic fittings. Indeed, at the end of 2007, China produced some 40% of all the world's ceramic tiles. And, according to TZMI, in 2007 only 40% of these were of medium or high quality.

The Nuclear Industry

For the nuclear industry, zirconium metal (derived from zirconium chemicals, usually by the reduction of zirconium tetrachloride (ZrCl4) and therefore included within the "Zirconia (ZrO2) & Chemicals" end use category in the foregoing illustrations) has the extremely useful properties not only of having a low absorption cross section for neutrons (that is, being transparent to neutrons), but also of being highly corrosion resistant, particularly at high temperatures—a benefit in both the nuclear and chemical industries.

Because of these, zirconium alloys are especially suited for use in the bars and plates that form the frameworks of nuclear fuel assemblies. In addition, the material is used to clad the seamless housings or "rods" of uranium oxide fuel pellets. According to French energy company Areva (OTC:ARVCF), the core of a 1,300 MW reactor contains some 193 fuel assemblies, each one consisting of 264 rods of fuel; that is, a total of 50,952 rods. With each rod measuring some four meters in length, that's about 125 miles (200,000 meters) of zirconium alloy tubing for the fuel rods alone.

Whether a reactor be boiling water, pressurized water, Russian light water cooled, or CANDU (CANada Deuterium Uranium), you will more often than not find zirconium alloys used extensively in its construction. In fact, the first three of these uses, respectively, 44 tonnes, 29.5 tonnes and 31.8 tonnes of zirconium metal and somewhere in the region of 90% of all zirconium metal consumed is used in the nuclear power generation industry in high-zirconium alloys.

The Zircon Producers

In 2008, 76% of the world's zircon came from just seven major producers, with Iluka being the largest of these.

Bloomberg Ticker

Company

Market Share

ILU:AU

Iluka Resources Limited

34%

EXX:SJ

Exxaro Resources Limited

15%

RIO:LN/RIO:AU

Rio Tinto Group

9%

BLT:LN

BHP Billiton

9%

Private Company

Bemax Resources Limited

4%

DD:US

E. I. du Pont de Nemours and Company (DuPont)

3%

Private Company*

Tiwest JV

2%

-

Others

24%

*Owned 50/50 between Tronox Western Australia Pty Ltd and subsidiaries of Exxaro Australia Sands Pty Ltd

The Prospects For Zircon (And Zirconium)

Zircon consumption, like that of most other commodities, has been hit by the global economic slowdown. However, supply (both existing and potential), too, appears to have been impacted equally, if not more, severely. Not only have a number of suppliers in both Africa and Australia (for example, Australian Zircon NL (Bloomberg Ticker—AZC:AU)) been facing financial challenges, with consequent decreases in production, but other producing countries have also been facing limitations on production. Indonesia, in particular, saw zircon production fall more than 40% in 2008 from the level in 2007.

At a presentation in July of this year, Iluka, describing the zircon market beyond 2009, and in 2010 anyway, was of the opinion that not only "(r)ecovery in the global economy [was] to increase zircon demand significantly above 2009 levels," but also "(l)imited zircon supply from existing sources will maintain tightness in the global market post 2009." This was the view echoed by Exxaro who, at the same conference, was of the opinion that the "[m]arket for 2010 is forecast to remain tight."

Add to this the particular financial challenges faced by both the less-well-established producers and the exploration companies, it is, perhaps, understandable that the larger producers, while wary in the short term, remain optimistic—if they can ride out the current economic doldrums.

In the longer term, however, on two counts alone, the prospects for both zircon and zirconium appear good. For zircon in general, as the world's economies recover, so too will continuing urbanization and industrialization in the world's developing regions gather pace again. This will be accompanied both by improved standards of living and by the demand for better quality. Since the major driver for zircon is the construction industry, with its use of the mineral in ceramics, glass and steel (especially in the housing sector), when recovery is fully under way, the longer term is set to look bright. Not least will this be the case in China, the world's largest consumer of zircon, where demand is likely to only grow.

In the developing countries, the demand for zirconium metal is set to grow in the next several years. Nuclear fuel rods normally need a life span of at least six years; rods made using zirconium currently appear to be the only ones that can do the job properly. To date, no substitute for the metal in this context has been found.

According to figures from the World Nuclear Association, in 2008, nuclear electricity generation accounted for 15% of global electricity generation. There are currently 436 operating reactors worldwide. However, going forward, the industry is set for solid growth. Fifty new reactors are, at present, in the process of being built in 13 different countries, including some 16 in China alone. A further 137 are on order or planned, and an additional 295 have been proposed—90 in China and 24 in South Africa. All these account for a great deal of zirconium metal demand.

Opportunities?

In terms of well-established companies, both Iluka and Exxaro can provide a good exposure to zircon; indeed, in 2008, together they accounted for nearly 50% of the world's zircon market. But, along with everybody else in the industry, both have been hit by the prevailing unfavorable conditions in the market. Furthermore, for neither of them is zircon production their only business; each also has significant exposure to titanium minerals.

The current financial environment has not made things easy either for the less well-established producers or the companies exploring, among other things, for zircon. For such companies, again, zircon is just one product to be derived from the deposits either that they are developing or for which they are prospecting.

With their zircon operations widely spread geographically, such companies include:

Ticker

Company

Zircon Operations

AZC:AU

Australian Zircon NL

Australia

GUN:AU

Gunson Resources Limited

Australia

KMR:LN

Kenmare Resources PLC

Mozambique

MDL:AU

Mineral Deposits Limited

Senegal

SRE:AU

Stirling Resources Limited (with

Australia and Indonesia

(MZI:AU)

Matilda Zircon Limited)

TIO:CN

Tiomin Resources Inc

Kenya

TIC:CN

Titanium Corporation

Canada

When it comes to zirconium metal and products made therefrom (for example, alloy plate, bar stock, sponge, etc.), the world's largest producer of zirconium metal is Areva, claiming some 40% of global production. Other major players in the zirconium market include, in the U.S., Wah Chang, owned by Allegheny Technologies (ATI) and Westinghouse (at its Western Zirconium Plant—part of its nuclear fuels business), which was acquired by Toshiba Corp (OTCPK:TOSBF) back in 2006 for some ¥600 billion. And, indeed, there has been talk recently that Toshiba and other nuclear players (in particular Mitsubishi Heavy Industries) may be circling Areva to pick up bits of the struggling company.

So, while zirconium will always be around on those sparkly rings, its promise for the future is more firmly rooted in shiny new tiles, bathroom suites and the core of nuclear power industry.

Resources

Exxaro Resources Limited (Exxaro)

Iluka Resources Limited (Iluka)

U.S. Geological Survey (USGS)

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