Originally published by Rockstone-Research.com
Recently, Chris Berry dwelled into the realms of magnesium, a commodity market neglected by many investors and mining companies yet offering formidable opportunities. Berry’s fundamental analysis of this strategically important market for the Western world can be read here; quotes to consider:
“Numerous materials have the potential to substantially impact our quality of life (for the better) in the future. Lithium, titanium, and scandium also come to mind with their potential for impact. Magnesium effectively competes for attention here and so a deeper dive into the metal is the focus of this report.”
“China effectively controls the global magnesium market, responsible for anywhere from 70 to 80% of production. This has everything to do with cheap and abundant labor, lax environmental standards, and inexpensive magnesium processing technologies.”
“It would appear that while there is no shortage of magnesium, security of supply may be the best lens through which to view this opportunity.”
“….estimates that by 2020, 250 pounds of magnesium will replace 500 pounds of steel and 90 pounds of magnesium will replace 130 pounds of aluminum per vehicle, resulting in an overall 15% weight reduction.”
“Growth rates in the automobile sector are a key factor to watch in increased magnesium consumption in the future. With dozens of automakers all over the world producing all different types of vehicles and global growth rates diverging, determining a singular growth rate, not to mention, the growth rate of magnesium alloys in this sector is a herculean task. Various sources estimate that 88.5 million vehicles were produced in 2014 with the strongest markets in the US and China.”
“The second major use (and the largest use for magnesium compounds) is in refractories – directly related to steel production. This is due to the strength of the crystal structure of magnesium, its high melting point, and its ability to remove sulfur from steel. The primary magnesium compound used in the refractory sector is dead burned magnesium (DBM), also referred to as refractory magnesia. In the US, roughly 48% of magnesium consumption is attributed domestic steel production with the rest attributed to agriculture and other end uses.”
(Chris Berry in “A Closer Look at Magnesium”, July 2015)
Picture: High-grade magnesite (+40% MgO) at surface on the Driftwood Creek Magnesium Property in BC, Canada: One of the best undeveloped magnesite deposits in North-America
North-America’s 3rd Magnesite Mine in 2016
A junior mining company on its way to enter the magnesium market in 2016 is MGX Minerals Inc., which plans to bring into production its Driftwood Creek Magnesite Deposit in south-eastern British Columbia (BC), Canada. The well-diversified company is engaged in the acquisition, exploration and development of industrial mineral deposits (primarily known magnesite deposits) in Western Canada that offer near-term production potential, minimal barriers to entry and low initial capital expenditures (CAPEX) to start generating regular cash-flows.
MGX has consolidated key mining claims throughout the Brisco-Driftwood Mining District and now controls the majority of significant known magnesite occurrences in BC as listed by the BCGS (British Columbia Geological Survey, Simandl, 2014). MGX’s flagship project is the Driftwood Creek Magnesium Deposit in the East Kootenay region.
The strategic business objectives include constructing a quarry mine and a processing plant to produce magnesium oxide (MgO) at Driftwood Creek.
The Driftwood Creek Project is currently under permitting review for granting of a mining lease and applications for associated operating permits are in various stages of preparation. The release of a maiden NI43-101 resource estimate is expected in the next weeks.
Magnesite is magnesium carbonate in its natural form. Today, only 2 magnesite deposits are mined in Canada and USA. MGX intends to bring a third into production, Driftwood Creek, which is believed to be one of the best undeveloped magnesite deposits in North-America.
MGX’s initial plan is to produce DBM (Dead Burned Magnesia), the principal industrial mineral derived from magnesite. It is a refractory material primarily used to line furnaces in the steel industry.
Extensive surface sampling at Driftwood Creek has shown high-grade magnesite over 1,400 x 1,900m of strike length and drilling has shown magnesite extending to 50-90m of depth. Based on this work, Rockstone believes the likelihood of establishing a long-lived, good quality resource is high.
The majority of DBM consumed in the US is imported, mostly from China. The Chinese government’s magnesia export policy, which in earlier decades was very expansive, has now become restrictive with limits on growth and a movement to lower quality.
This creates a unique opportunity to replace a large share of US imports with DBM produced in BC. It is broadly estimated that the US consumes 350,000-450,000 tons of DBM per year with imports supplying approximately 230,000 tons of this demand.
Initially, MGX plans to sell 100,000 tons MgO annually into the US market, representing a market share goal of about 25% of total consumption or 45% of the imports. Using a recent MgO spot price of $400 USD/ton, average grade (94-96%) DBM sells for around $500 CAD/ton, this would represent a potential annual sales target of $50 million CAD for MGX.
MGX has the opportunity to achieve this goal by exploiting the following strategic advantages:
1. For North America, a BC location improves transportation costs and time to market compared to imports.
2. A potential magnesite resource of size and quality to offer a long-term predictable supply.
3. Potentially the only Canadian supplier of DBM to the US using lower cost magnesite.
4. Prospective open-pit mining with no foreseeable environmental problems.
5. Access to critical low cost natural gas and electricity for processing.
6. Existing beneficiation techniques to upgrade the mineralization.
7. Well-understood production technology.
8. Corporate policy focused on keeping initial capital cost low and efficient to minimize the increase in the company’s shares outstanding, and to set achievable fund raising goals.
These advantages provide MGX with an outstanding opportunity to fast track into production with start-up planned in the fall of 2016.
Once positive cash-flow has been achieved, there are other lucrative opportunities for MGX to consider. These include replacement of drywall and sheathing products used in construction with magboard (a magnesia based product), expansion into high-tech magnesia products, such as electro-fused magnesia (EFM) with strong demand in the steel industry, and production of magnesium metal, which offers the automobile and aircraft industries opportunities to reduce weight and increase strength.
In May 2015, MGX entered into a comprehensive partnership with Eaton Corp. and Highbury Energy Inc. to locate, develop and build 7-10 industrial mineral mines. This strategic partnership provides MGX with access to significant financial support, engineering expertise and low-cost, long-term energy solutions.
Engineering Expertise & Financing Support:
Eaton Corp. (NYSE: ETN; $28 billion USD market cap.) is an international power management company that provides energy-efficient solutions to effectively manage electrical, hydraulic and mechanical power more efficiently, safely and sustainably. Eaton generated $23 billion USD in revenue in 2014 with around 12,000 employees worldwide across 175 countries.
Low-Cost & Long-Term Energy Supplier:
Highbury Energy Inc. has developed a patent pending next generation dual-bed steam gasification technology that converts organic matter into high-grade synthesis bio-gas. Highbury’s strategy is to demonstrate superior efficiency and effectiveness of its technology on a commercial scale through the launch of multiple large and small-scale projects globally.
• Eaton will provide financing options for primary equipment and engineering, whereas its global mining group will provide engineering services to MGX for construction of the mine and associated processing plant at Driftwood Creek.
• Highbury will act as lead development partner and build/operate its proprietary gasification system.
• MGX will enter into a 20 year energy supply contract with Eaton.
• Eaton and Highbury will work with MGX to develop 7-10 additional industrial mineral projects using a similar business model.
The Driftwood Creek Magnesite Deposit
MGX’s principal property, the Driftwood Creek Deposit, is located in south-eastern BC, 32km south-west of the town of Brisco, on Provincial highway 93. The property is easily accessible by road. Elevation of the property lies between 1,190-1,370m above sea level. The property includes 3 contiguous mineral tenures, covering 326 hectares with a strike length of 1,900m. It divides into the Eastern and Western Zones.
The deposit is amenable to open-pit mining with mineralization commencing at surface and continuing to depths of around 100m. Previous drill results have shown sections of almost pure magnesite up to 90m deep with higher grade material in the center and lower grades at the edges of the deposit. A beneficiation process is available for treating observed SiO2 and CaO impurities. Dolomite, which is often a significant problem in lower grade magnesite deposits, is present in relatively low levels and is not expected to pose a problem. The low dolomite component provides a significant competitive advantage to MGX, as there are very few known high-purity magnesite deposits in Canada and USA.
The property was optioned by MGX subsidiary Manto Gold Corp. in April of 2014 and subsequently transferred to MGX and amended in July of 2014. The option requires MGX to spend $50,000 CAD on exploration and development and issue 900,000 shares to the vendor until July 2016, whereas the Vendor retains a 10% carried interest up to the production decision (this may be purchased at any time by MGX for $300,000 CAD).
Development & Operations Outlook
Historic diamond drilling programs were completed by CanOxy (1990) and Tusk in (2008). When combined, they covered around 740 m or 40% of the strike length. Most holes found significant magnesite and enough information was generated to determine the general configuration of the mineralization at depth in the areas drilled.
2 historic resource estimates (non NI43-101 compliant) were completed by past operators:
Kaiser Resources Ltd. (Morris, 1978):
22.5 million tons of magnesite
Canadian Occidental Ltd. (Rodgers, 1989):
29.4 million tons of magnesite
Rockstone expects a first NI43-101 compliant resource estimate this summer with a tonnage at least in line with historic estimates. MGX has begun resource modeling with new data, re-assays, surface sampling, and drilling programs which commenced in 2014 with Phase 2 (8 holes over 1,000m) to start on August 20, 2015.
The initial beneficiation study by SGS showed that the 2 major impurities can be significantly reduced (approximately 76-80% of SiO2 and about 40% of CaO can be removed at modest cost).
Good surface samples have been obtained over a large area. The geology of magnesite deposits suggests they almost always occur in pods or lenses that typically show at the surface. Drilling has indicated that the magnesite persists to a depth of 50m in the Eastern Zone and 90m in the Western Zone. The chances are good that MGX’s drill programs are defining a sufficient size and quality resource to support MGX’s production plans for several decades.
Driftwood Creek has been identified as being amenable to standard open-pit mining methods. Past exploration work has shown that the magnesite in the Eastern Zone is found in a bowl shape extending from surface to a depth of approximately 50m. Typically, the grades are higher toward the center of the bowl, where it is almost pure magnesite. Further drilling in the Western Zone may find a similar surface configuration but with magnesite more often in strata or pods, being the other geologically common form of magnesite deposits.
Engineers of CanOxy in 1990 completed a basic pit design for both the Eastern and Western Zones, which may serve as the basis for an initial pit design for MGX.
The rocks are relatively soft and blasting, loading, on-site crushing, and transport are expected to proceed with relative ease. Processing of the mined rocks on-site will be limited to crushing using a jaw/cone crusher to prepare it for transport. Transportation can be done by road to a siding at Brisco, BC, and then by rail to an industrial site yet to be determined. Once transported to the mill, the crushed rocks will pass through at least 5 beneficiation steps: Preliminary crushing, secondary crushing, rough flotation, fine flotation, and dewatering. This standard process has already been designed and bench tested by SGS Lakefield Research Ltd. has indicated to produce a saleable product.
The dominant milling cost is for electricity, with further additions for labour, loading, unloading and consumables. Western Canada has favorable electricity rates that give MGX a competitive advantage over most imports and domestic US production. Once milled and beneficiated, a rotary kiln will be used for the calcination of the magnesite concentrate to produce DBM. This is a basic industrial process similar to the manufacture of cement, whereby the magnesite is heated to greater that 1,650C driving off most of the CO2 reducing it to MgO with about 0.5% residual CO2 and the remaining impurities left after beneficiation.
MGX has a meaningful competitive advantage compared to DBM producers in most of the rest of the world due to low cost natural gas available in South Eastern, BC. The transport of CCM and DBM products to market in the US would occur by rail in ore carrier cars for large customers or as packaged in bulk bags. The location of the major DBM markets runs from Michigan south and east throughout the steel making and industrial areas of Ohio, Pennsylvania and the surrounding states.
In reviewing BC’s deposits, George Simandl et al, senior experts in the BC Department of Energy & Mines wrote in 2012:
“Chemical analysis of some drill intersections from Driftwood Creek are comparable to Mt. Brussilof. Chemical analyses of surface samples from seven undeveloped deposits including Driftwood Creek, Topaz Lake, Red Mountain, JAB, Cleland Lake, Dunbar Creek and Botts Lake have equivalent or higher grades than most magnesite deposits mined in Europe.”
To date only 1 magnesite deposit has been developed in British Columbia (Baymag’s Mt. Brussilof), which is considered to be one of the best in the world. Driftwood Creek is believed to be a top choice, because it has had substantial work done over many years by competent groups and appears to be larger larger than the others. The only known active Canadian magnesite mine is operated by Baymag, a private company which appears to be producing CCM, DBM and EFM with only its CCM going to the US. Furthermore, there appears to be no current Canadian or US suppliers of DBM from magnesite. Since magnesite is typically a lower cost source of DBM than brines, MGX may expect a very accessible US market for its potential DBM production. There is only 1 magnesite mine in the US (located in Gabbs, Nevada) and its production was devoted entirely to CCM with no production of DBM. The only producer of DBM in the US was Martin Marrieta in Mississippi with a combined annual capacity of 314,000 tons to produce DBM, CCM and magnesium hydroxide from brines. Brines are usually considered to be a higher cost method of production than magnesia products made from magnesite.
MGX has acquired all, or portions of, some of the most prospective BC magnesite prospects: Anza, Topaz Lake, Red Mountain, Cleland Lake, Dunbar Creek and Marysville. Management has plans to review these opportunities as conditions warrant. Exploration began on the White Moon Magnesium Deposit in California on July 6, 2015. MGX has begun preliminary planning at White Moon to build and operate the only MgO wallboard production plant in the US. Initial production is targeting 10 million sheets of wallboard annually.
MGX’s strategic partner, Eaton Corp., is a very large energy company and a proposed energy contract would be with them, or one of their operating partners, in exchange for the financing of the primary equipment being the power plant and industrial kilns. Eaton would charge MGX on a per GJ (gigajoule) basis and supply the fuel in the form of biomass, waste wood from nearby sawmills, and operate the power plant. It is a classic energy supply model similar to any power plant, they build a power plant then charge MGX for the power.
Highbury Energy Inc. is a technology company that has developed proprietary high efficiency biomass to syngas (hydrogen gas) conversion plant. Thus, MGX (or Eaton) would be buying the power plant equipment from Highbury, which is basically a buy/sell relationship. Highbury may not be selling the power or operating the equipment.
All-in CAPEX is estimated in the range of $70 million CAD for a power plant, industrial kilns and all other plant equipment and engineering sufficient to produce 100,000 tons of CCM/DBM per year. You have to produce CCM to produce DBM as it is a 2 step process so MGX may enter either market.
If for whatever reason MGX would not use the biomass and just used natural gas, MGX would be looking at about $50 million CAD and the company could scale at a half rate 50,000 tons/year for an estimated $35 million CAD without biomass.
Under the biomass model, Eaton would pay for the primary equipment and MGX would have to come up with about $15 million CAD for other equipment. If, for whatever reason, MGX does not go the biomass route, MGX would finance it all. Financing could be a combination of debt and equity, whereas I see no problem in financing the equipment once permits are approved, because Driftwood Creek appears already today to potentially be a highly profitable quarry operation with operating costs estimated at around $150/ton and revenue at $500/ton for mid-grade 94-96% DBM.
The Magnesite Opportunity
Pure magnesite is magnesium carbonate (MgCO3) having a content of 47.6% magnesium oxide (MgO) and 52.4% carbon dioxide (CO2) by weight. Magnesite ore almost always contains impurities. The most common of these are silica (SiO2), aluminum oxide (Al2O3), iron oxide (Fe2O3) and calcium oxide (CaO).
MGX has 3 major opportunities it will continue to evaluate as it generates positive cash-flow. There are significant opportunities in the CCM market. CCM is widely used in a variety of agricultural and industrial applications. Perhaps the most interesting value added opportunity is the production of magboard (magnesia based wallboard). Magboard is the replacement for gypsum board (drywall) and certain exterior sheathing products as it is moisture and mold resistant and has a better fire resistance rating than drywall. Additionally, special disposal procedures are not required for magboard. The US already imports Chinese magboard. Recently, it sold at a premium to drywall. Considering the freight advantage over China and a price competitive source of raw material, MGX plans to investigate seriously the possible early development of a West Coast market.
As market analysis has shown, the demand for electro-fused magnesia (EFM) is growing at about twice the rate of CCM and DBM. EFM is produced by calcining magnesite at temperatures above 2,200C in a furnace rather than a kiln. The furnace is relatively small, commonly with capacity of between 5,000-10,000 tons annually. Because of the small size of these furnaces, MGX should be able to afford entry into this line once it establishes stable operations and market conditions continue to warrant.
Finally, metallic magnesium offers a considerable weight and strength advantage over aluminum in auto and aircraft production. New, small-scale and more environmentally friendly methods are currently being developed and could offer MGX a further opportunity, again because of the company’s low cost raw material and strategic location.
When magnesite is burned/calcined or alternatively fused with increasing application of heat, it forms 3 major classes of product. Each of these contains subclasses based on MgO content, physical characteristics and chemical impurities. The major categories are:
Caustic Calcined Magnesia (CCM):
When magnesite is heated in a kiln to between 800-1,000C, sufficient CO2 is driven off to leave a product containing 3-5% CO2. This product is reactive and is hygroscopic (tends to absorb water). Worldwide, CCM is used directly in specialty fertilizers, animal feeds and environmental applications, particularly water purification, and indirectly as an ingredient in many other industrial and commercial products. In the US, CCM is primarily used for environmental applications (water treatment and smokestack gas scrubbing), with these uses accounting for 43% of consumption. Other primary uses are animal feed and fertilizer, accounting for 23%. The remainder is used in manufacturing (rubber and electrical products), construction (oxychloride and oxysulfate cements and MgO based wallboard), as well as in medicines and cosmetics. In Canada, its major uses are in agricultural soil treatments, livestock feeds, pulp and paper production and water purification.
Dead Burned Magnesia (DBM):
This is produced when the kiln temperature is raised to 1,650-1,800C. In this case, the CO2 content is reduced to less than 0.5%. The product no longer absorbs any significant amount of water. Worldwide and in North-America, DBM is primarily used in industrial applications requiring material capable of withstanding very high temperatures (refractories). Its principal use is in the manufacture of linings for furnaces used in steel production.
Electro Fused Magnesia (EFM):
This product is created when high grade magnesite is heated in an electric furnace until it becomes fused (at least 2,250C). It is increasingly replacing DBM in steel production. Initially, MGX probably would not want to pursue this market as the purchase of a suitable electric furnace would significantly raise initial capital requirements.
Magnesium is refined from magnesite, dolomite, brucite, olivine and hydromagnesia as well as sea water and salt-water brines. It does not occur in nature, because it is chemically active and combines readily with other minerals. There are 2 principal ways of producing metallic magnesium: Through the thermic reduction of magnesium oxide found in the minerals listed above (dry method), and electrolytic reduction of magnesium chloride contained in sea water or brines (wet method). In contrast to the methods used in magnesia production mentioned earlier, research is continuously evolving to find more efficient ways to produce the metal. The principal uses of metallic magnesium in North-America are die casting (33%), aluminum alloys (33%), titanium refining (11%) and steel desulfurization (11%). There is an increasing demand for use in cases for portable electronics such as laptops and cellphones, because of its light weight and structural strength. Worldwide consumption of metallic magnesium was about 900,000 tons in 2012. During the last 6 years, the magnesium price (99.8%; FOB China) ranged between $2,185-3,300 USD/ton.
CHINA’S MAGNESITE INDUSTRY: RESOURCES, SUPPLY, & GLOBAL INFLUENCE
By Mike O’Driscoll, Industrial Minerals, London, UK
The tide has turned. Developments in China that have continued to unfold over the last four years or so have now reached a point where the supply market dynamics of certain industrial minerals have changed significantly.
No more is this sea change better exemplified than by the supply market for magnesite, and in particular, its processed derivative grades of dead burned magnesia (DBM), caustic calcined magnesia (CCM), and fused magnesia (FM).
But what has compounded the barrage of influencing factors impacting this sector, which include the widespread effects of energy and freight cost increases, has been rising demand from certain end use markets.
Clearly, the magnesia market is experiencing bittersweet conditions. But those western producers which have monitored and responded to this market transformation, stand to taste success in the near and medium future.
Revolution in World Supply Status
In essence, while China, as host to a wealth of magnesite resources in Liaoning province, remains a huge producer of magnesia, its supply dominance on the global magnesia market has been considerably weakened. In future, it will mainly aim to supply domestic, and to some extent east Asian markets.
Magnesia consumers outside China are now scrabbling for alternative, “western” sources of supply. At the same time, magnesia producers outside China that weathered the storm of low cost Chinese DBM and FM imports flooding their regional markets for the last 20 years (and many did not), are busy investing in production capacity increases to meet not just demand from falling Chinese supply, but also demand from end use markets which is picking up.
And it is not just a matter of expanding capacity of existing magnesia product lines. In the face of plentiful lower cost DBM and FM substitutes from China over the last couple of decades, many western magnesia producers started to switch their focus to the nonrefractory markets (eg. environmental, specialities) which promised lucrative opportunities (and still do) and crucially, a lessening of sales revenue dependence on the DBM refractories market.
Now we have the likes of Baymag (Canada), Bommag (Serbia/Turkey), and Kumas (Turkey) not only expanding capacities but seriously considering diversifying into DBM and FM production. Perhaps DSP (Israel), having ceased its famous high purity DBM activity as recently as 2005, might even reconsider a return to the “other side”.
But it’s not all DBM and FM. The CCM and specialities markets are also demanding a response, and so Baymag, DSP, Martin Marietta (USA), Premier Chemicals (USA), Qmag (Australia), MGR (Spain), and Magnifin (Austria) are also stepping up to the market on the non-refractory side.
From most accounts, the situation with regard to Chinese supply has been described as one of turmoil, with prices rising, leading to improving opportunities for western producers.
The majors are conducting huge expansion programmes, such as Qmag, Magnezit (Russia), and the new look Magnesita (Brazil). Even smaller players such as Causmag (Australia) and Dalmia (India) are looking to increase production.
In short, the western magnesia supply sector is witnessing a landmark event in capacity investment and market share penetration as China’s previously dominant role begins to weaken (for a review of western capacity expansions see Industrial Minerals, September 2008, p.28).
Merger & Acquisition Activity
Another response of course has been a raft of mergers and acquisitions in order to secure resources and supply outside China. These have included private equity groups taking over Magnesita and Qmag; Imerys entering the FM business through UCM; Peñoles further consolidating the electrical grade FM market by acquiring Minco; Martin Marietta acquiring Morton Salt’s Specialty Magnesia Group; Bomex entering the market through Calmag (now Bommag); LWB acquiring Magnesita; and Magnezit’s pursuit of Slovakian magnesia, with Slovmag aboard while currently wooing SMZ. Interestingly, RHI has gone “the other way”, and has invested in a state of the art joint venture operation at Dashiqiao, Liaoning, with which it aims to secure high quality feedstock for its Chinese refractory plants.
Tata Refractories Ltd has announced intentions to follow suit, and other majors, such as Qmag are known to be interested in seeking options.
Naturally, there is now renewed interest from several parties in the idled 50,000 tpa DBM/10,000 CCM Jormag facility, Jordan, and the commercially undeveloped Zhargat project, Saudi Arabia.
Elsewhere, there will no doubt be suitors for stakes in SMZ, in Slovakia, and Magnohrom, in Serbia, whose respective ownerships are on the block.
The “China Factor”
The “China factor” has been key to magnesia’s market change, and has significantly influenced prices and availability of material to global markets.
Resources & production
China hosts the largest share of the world’s magnesite deposits, accounting for 26% or 3,319m. tonnes of predominantly sparry magnesite (followed by North Korea, 24%, and Russia, 22%; Wilson 2008).
China accounts for 44% of total world magnesite mined (19m. tonnes in 2007) and 50% of the total world magnesia produced (8.2m. tonnes CCM, DBM, FM; Wilson 2008). Russia follows China at 13% of magnesia supply, illustrating China’s dominance of magnesia production.
Apart from one producer in Shandong province, central eastern China, the country’s magnesite resources and production are concentrated around the cities of Haicheng and Dashiqiao in Liaoning province, north-east China.
Although there are also producers in the Xiuyan district of south-east Liaoning, the Haicheng-Dashiqiao Magnesite Belt hosts the majority of producers. In total these may number 200-300 of large, medium, and many small scale producers. However, the provincial government is attempting to streamline the suppliers into fewer, more cost efficient enterprises, and evolve and diversify their product base.
Most of the large producers supply domestic and overseas markets, and also operate integrated refractory brick and monolithic plants, also for domestic and export markets.
Leading Chinese magnesite producers include Xiyang Group, Jiachen Group, Liaoning Houying Group, Haicheng Huayin Group, Haicheng Huayu Group, and Liaoning Jinding Magnesite Group.
Recent supply developments
In the face of depleting quality of magnesite raw material in Liaoning, widely regarded as seriously impacting CCM feedstock quality for fused magnesia FM production (see later), Haicheng Huayin Group has brought on stream its new high quality magnesite mine in Kamaduo, Tibet.
Reserve evaluation was concluded in August 2006, and the following year Huayin completed construction of the mine and industrial tests of the aphanitic magnesite. Reserves are claimed to be 120m. tonnes and production of crude ore is 500,000 tpa.
A 150,000 tpa CCM plant was established in 2008 to process the Tibetan material, which is then transported to Liaoning as feedstock for Huayin’s FM, DBM, and mag-alumina spinel products. Typical CCM chemical composition is 98.5-99.3% MgO, 0.7% CaO, 0.15% SiO2, 0.05% Fe2O3.
Fengchi Refractories Co. of Haicheng started up DBM production from three new kilns in August 2008. Investment and construction began in 2007 and now the company has an additional 100,000 tpa DBM capacity. Fengchi operates six mines and five plants producing magnesite, CCM, DBM, FM, and a range of refractories.
Liaoning Xiuyan Qinghua Refractories Co. Ltd, a subsidiary of the huge refractories group, Yingkou Qinghua Group, in May 2008 brought on stream four oil kilns and four ultra high temperature kilns. The new kilns added 140,000 tpa high purity DBM and 80,000 tpa high quality magnesite brick capacities.
Liaoning Donghe Refractory Group plans to establish a 80,000 tpa high purity magnesite plant in 2009, aiming at an initial output of 30,000 tpa.
Overseas interest in Liaoning
As the global market leader in the refractory industry, as well as a significant captive producer of magnesia in Austria and Turkey, RHI AG, based in Vienna, decided that investment into a high quality magnesia production facility was a priority in order to secure long term supply of the highest quality refractories for its customers.
RHI has formed a j-v with Liaoning Jinding Magnesite Group Co. Ltd., (JDMG), of Dashiqiao, which operates one of the largest magnesite mines in Liaoning (the Huaziyu mine). RHI is to invest more than $50m. in a raw ore beneficiation and magnesia production plant to produce 100,000 tpa of the highest purity magnesia grades from middle grade raw magnesite. The j-v is called Liaoning RHI Jinding Magnesia Co. Ltd.
Tata Refractories Ltd (TRL), part of Tata Steel, India was reported to be in the process of signing a memorandum of understanding for a magnesite mining lease in China.
The mine will make its operations in that country even more cost-effective. Up to now, TRL has bought raw magnesite from Chinese magnesite producers. The mine is to be located near Bayuquan, Liaoning, in the same district as TRL existing 64,000 tpa magnesite-based refractories plant. The plant recently completed the second phase of its capacity expansion. The plant’s original capacity was 30,000 tpa. TRL is planning a third phase expansion of the plant that will take capacity to 100,000 tpa.
Influence on global supply market
Chinese magnesia export smuggling via the South Korean port of Kunsan en route to Rotterdam, which re-emerged during 2008, has supposedly run its course, ie. this “source” has apparently been stopped by government authorities, but not without ramifications.
It is believed that the smuggling clampdown alone has been the biggest influence on shortages and prices of late and is estimated to have taken about 700,000 tpa out of the market. This has driven up prices significantly and has had a major impact on demand for export licences (as well as driving speculation that smuggling may soon resume).
By October 2008, the price of an export licence for Chinese magnesia was in the region of RMB2,000/tonne ($293/tonne). Chinese magnesia bulk, FOB prices were in the region of DBM91 $550/tonne; DBM95 500-600/tonne; and DBM97 650-800/tonne, depending on who one talked to. The views of some traders are that the government will not issue any additional licences for 2008.
Many Chinese magnesia plants have had to close or partially close owing to a lack of fuel, power, and raw magnesite feedstock. They were also hindered during JulySeptember 2008 by the restrictions on drill and blast mining imposed as a result of Olympic Games “controls”.
Other factors include the quality deterioration of Chinese DBM and FM over the past two to three years, particularly with regard to 97% MgO DBM.
It is understood that this has been due to a combination of limited investment in exploration, poor mine planning practices, high grading the deposits, pressures to reduce cost, and a greater focus on the domestic refractory/steel industry.
Also of significance will be the progress and ramifications of US trade authorities challenging China’s export policies in respect of its membership of the World Trade Organisation.
This action was instigated in September 2008, largely driven by the US steel sector looking to combat allegedly unfair high prices for Chinese imports of steelmaking raw materials. These included magnesia, amongst other minerals.
The upshot is that the cessation of smuggling, restriction of export licences and export volumes, declining quality and reduced production, more focus on domestic market supply, will together translate to even tighter magnesia availability from China.
In response to this market demand, and especially in order to take up any share of the market from declining Chinese magnesia supply, western magnesia producers are busy investing in capacity expansions and diversifying, and in some cases returning to, DBM and FM production.
However, despite these overwhelming issues, the longevity of this trend has been questioned. Some observers have warned that a risk still exists that the Chinese magnesia price may collapse in future, since today’s price does not reflect the production costs in China.
That said, it is clear that western producers and consumers are already responding by reducing their reliance on Chinese supply, increasing their capacities, and/or securing supply for the future.
While China’s magnesia industry will remain an important and active sector of China’s industrial minerals business, it will increasingly be focused on supplying domestic markets.
Without doubt, Chinese magnesia producers will become more efficient and upgrade their facilities over time, and an improvement in grade quality will return. However, when or if this material will return to the global markets in volumes seen over the last two decades remains to be seen, and in the near to medium term (even long term), this appears remote.
In response to this market demand, and especially in order to take up any share of the market from declining Chinese magnesia supply, western magnesia producers are busy investing in capacity expansions and diversifying, and in some cases returning to, DBM and FM production.
These are very much interesting times for the world magnesia market, with China, as ever, influencing its market dynamics.
1. O’Driscoll, M.J. (2008), “Chinese magnesia movers and shakers”, Industrial Minerals, November 2008, pp.12-13.
2. O’Driscoll, M.J. (2008), “Magnesite ignites”, Industrial Minerals, September 2008, pp.28-45.
3. O’Driscoll, M.J. (2008), “The Changing World of Magnesite”, paper presented at 3rd China Liaoning International Magnesia Materials Exposition, 22-24 September 2008, Shenyang.
4. Wilson, I. (2008), “A Review of the World’s Magnesite Resources”, paper presented at 3rd China Liaoning International Magnesia Materials Exposition, 22-24 September 2008, Shenyang.
Close-up of the Eastern Zone (picture #1) of the Driftwood Creek Deposit as well as numerous magnesite outcrops in the Driftwood Mining District: Topaz Lake Property (picture #2-4) and the Red Mountain Property (picture #5-6):
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