Russia’s war on the Ukraine puts more pressure on global titanium mineral supplies

Russia war Ukraine global titanium dioxide mineral supplies ASX stocks
The Ukraine is among the world’s top 10 titanium dioxide producers, with the mineral critical to many end-uses including pigment in paint.

The world is not running short of paint, but it might soon face a squeeze on titanium dioxide supplies as Russia continues waging war on the Ukraine – possibly triggering a wake-up call for Australian producers of the material which is mainly used as pigment in paint.

While best-known in the commodities world for its wide range of agricultural exports such as wheat and barley, Ukraine is also a top 10 producer of titanium dioxide, ranking sixth last year in a market dominated by China, South Africa, and Australia.

Losing Ukraine’s annual output of 470,000 tonnes of titanium dioxide (about 5% of the world market) and its associated 94,000t of zircon, a mineral often found in the same ore bodies, could be the event to spark interest in ASX-listed companies exposed to both materials.

ASX developers and miners rise

Top of that list is mining heavyweight, Iluka Resources (ASX: ILU), which has risen by 7% since the bombing started, a modest move given that markets for both titanium dioxide and zircon have been trending up for the past 12-months.

Smaller stocks exposed to both materials, including Strandline Resources (ASX: STA) and Base Resources (ASX: BSE), are outperforming Iluka, and if the latest investment bank research is correct they could continue to rise strongly.

Earlier this week, Strandline, which has just reached the halfway mark in building its Coburn project in WA, is up 16% since last week. Base Resources, which operates the Kwale mine in Kenya is up 10%.

Most other titanium and zircon exposed stocks are also moving higher as demand for the material, also known as mineral sands, continues to rise.

Image Resources (ASX: IMA), which has a number of minerals sands projects in WA and is fighting a Chinese attempt to snatch control, is up 8% to $0.26.

Sheffield Resources (ASX: SFX), which is developing the Thunderbird project in WA, has risen by 10% to $0.43, while Sovereign Metals (ASX: SVM) is yet to react, slipping 7% lower despite growing interest in its big Kasiya rutile project in Malawi.

Meanwhile, TNG Ltd (ASX: TNG) is up 3% for the week. While TNG is not a mineral sands miner, the company is advancing development of its flagship Mount Peake project in the Northern Territory where it plans to produce titanium dioxide pigment from mining one of the largest flat-lying, shallow vanadium-titanium deposits in Australia.

TNG has developed an innovative proprietary technology, the TIVAN Process, to process the ore and produce high-purity titanium dioxide pigment, vanadium pentoxide and iron oxide for export markets.

Tightened supplies

The potential loss of Ukraine’s 5% contribution to the global titanium dioxide trade comes less than a year after two other significant supply-related events in the market – a threat by Iluka to close its Sierra Leone Rutile business because of poor productivity, and the closure by Rio Tinto (ASX: RIO) of its Richards Bay project in South Africa after an outbreak of community violence.

Rising prices encouraged Iluka to keep its Sierra Leone business functioning, ahead of a potential spin-off into a new company, and Rio Tinto has restarted its Richards Bay operation after declaring force majeure (can’t deliver because of unforeseeable circumstances).

While the problems in Sierra Leone and Richard Bay have been resolved for now, they could easily resurface given the challenges of operating mines in Africa at a time of rising resource nationalism.

When combined with the potential loss of Ukrainian titanium dioxide, a significant tightening of the market is possible over the next 12-months.

Morgans lifts price target for Strandline

Strandline this week attracted the interest of Morgans, a local stockbroking firm, which lifted its 12-month price target for the stock from $0.50 to $0.52 (48% higher than last sales at $0.35) thanks to the solid construction progress at Coburn.

Morgans reckons the next six months will be crucial for Strandline. Coburn remains on schedule and on budget, with all construction projects in WA feeling the squeeze of labour shortages and rising costs.

“With a published pre-production capital budget of $260 million and with $140 million spent to date, Strandline’s available cash and finance facilities look to comfortably cover the capital commitment plus working capital during ramp up,” Morgans noted.

Given the prospect of further increases in prices for ilmenite (a primary ore of titanium) and zircon Morgans expects Strandline to trade profitably from next year and even pay a modest dividend. In the 2024 financial year net profit should hit $57 million and the dividend rise to $0.05 a share.

Canaccord Genuity tips higher price for Base

Base, which caught the eye this week of Canaccord Genuity, is also tipped to deliver both a higher share price and rising dividend, building on a first half pre-tax profit of US$54 million.

“The company noted the strong price environment for mineral sands, consistent with our robust pricing outlook for 2022,” said Canaccord with expects Base’s share price to more than double to $0.85.

Iluka, which last week reported a 108% increase in underlying net profit to $315 million for the year ended 31 December said tightness was a feature of the high-grade titanium feedstock market with demand in all regions continuing to outstrip supply.

“Pigment inventories remain below seasonal norms as pigment producers have maintain high utilisation rates throughout the seasonally slower northern hemisphere winter months,” Iluka stated.

A feature of the market, Iluka said, was “customers increasingly prioritising security of supply”, a reflection of the problems at Sierra Rutile and Richards Bay, with the latest threat to supply being the war in Ukraine.

Zircon also on the rise

Zircon, which is a higher value mineral, is reported by Morgan Stanley, a leading investment bank, to have risen by 14% since mid-December to US$2,880 a tonne.

“In the next three months it is expected prices could increase to US$3,150/t,” the bank said.

“The global supply of zircon increased last year compared to 2020 but was below levels seen in 2018-19.”

Morgan Stanley said in a report based on interviews with Chinese zircon buyers that there was some fear in the market of shortages developing.

For the emerging crop of mineral sands producers those comments about potential shortages are encouraging and could see a re-rating of share prices later in the year.

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