Mar. 9, 2012 - Exxaro Resources's lofty ambition to double its market value to $20bn by 2020 is the need for the Chinese to tile their bathrooms and kitchens, and for US homeowners to repaint their houses with more enthusiastic application than in recent summers. These are the markets that Exxaro Resources's mineral sands businesses - zircon and ilmenite - ultimately supply. About 55% of global zircon demand is from the ceramics industry, of which 90% is used to make tiles. The largest market for tiles is China.
Exxaro Resources CEO, Sipho Nkosi set out a four-pronged strategy to grow over the next eight years which, in addition to mineral sands, embraces the firm's existing coal assets and two new divisions. These are primary iron ore production, and an energy business that seeks to develop alternative energy sources, including solar and wind, and which speaks to Government's independent power producer (IPP) procurement programme.
Exxaro's plan is to consolidate its mineral sands investments into New Tronox, a deal with its US counterpart in which Tronox adds its Australian business and Exxaro adds its zircon and ilmenite slag businesses in South Africa, and a stake in Australia TiWest. Exxaro takes a 38.5% stake in the New Tronox, which while a minority holding is worth more, it hopes. New Tronox will list overseas just in time for a surge in the mineral sands business, it also hopes.
Certainly, the short-term prognosis is good for the mineral sands business. A study among Chinese tiles companies by Macquarie Securities shows that 50% of its respondents anticipated an increase in tile sales over the next three months.
Macquarie Securities is also bullish over the longer term. to continue to believe that the structural drivers of strong growth remain in place, and this should be enough to underpin robust commodity demand in the coming years, Macquarie said.
But risks abound. One is that Exxaro fails to win regulatory approval for its Fairbreeze mineral sands project situated in the ecologically sensitive peninsula of KwaZulu- Natal, 45 km south of Richards Bay. Fairbreeze is important because its Hillendale operation is nearly mined out.
Says Trevor Arran, GM of Exxaro's mineral sands division: in my opinion, the mine [Fairbreeze] will be approved. Any problem is to do with its timing. We are hoping to start construction in the second half of this financial year but first production won't be until the middle of 2014.
He believes the mineral sands business is due for a structural repricing that will make it a solid contributor to Exxaro's growth plans. There was a complete lack of money going into the global industry because margins were so low. We either had to get a change in the pricing mechanism for we would have pulled the plug on the business, he says.
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