Analysts at Peel Hunt are among many speculating that a tightening in the mineral sands market will be the natural consequence of the decision taken by Rio Tinto (LON:RIO) on 4 December to suspend operations at the famous Richards Bay mine.
Rio cited ongoing community violence, including the murder of one Richards Bay employee, as the cause of the suspension.
The thinking among commentators is that a succession struggle in one of the local tribes has spilled over into and embroiled the Richards Bay operations. Richards Bay provides subsidies to various tribal groups, and it may be that a battle over this funding, or the withholding of it, is at the root of the latest trouble.
But it’s also true that the Richards Bay area has been wracked by community violence for some time now, including as part of a wider taxi company turf war, so the troubled backdrop is not new.
What it does do is beg the question of Rio Tinto: what is the long-term future of the operation?
Broker SP Angel has suggested right off the bat that one beneficiary could be Bluejay Mining (LON:JAY), which is in any case already in joint venture with Rio at the Dundas mineral sands project in Greenland.
Werner Duvenhage, the managing director at Richards Bay, when pressed by Bloomberg, wouldn’t be specific about the amount of cashflow that will be lost to Rio as a consequence, but he did say that it would be significant.
A planned expansion at Richards Bay, budgeted at more than US$460mln has now been put on hold too. Then again, that could free up budget for the development of projects elsewhere, like Dundas.
Bluejay’s shares ticked up moderately to 8.7p on the news, but of course it isn’t the only company that’s likely to benefit.
Base Resources (LON:BSE)(ASX:BSE) and Kenmare Resources (LON:KMR) are both already producing mineral sands, from projects in Kenya and Mozambique respectively. Given that the tightness of supply predicted by Peel Hunt is likely to be felt almost immediately, it’s likely that the one of the most noticeable knock-on effects will be a boost both to the top lines and margins of these operations.
Base has had a smoother ride into production than Kenmare, and has shown more of an appetite for wider expansion into other projects in other jurisdictions, but both are now well established and likely to be the direct beneficiaries of any further strengthening in the mineral sands price.
Coming along behind, and also in business with Rio in on a mineral sands project Africa, is Savannah Resources (LON:SAV). Savannah is currently valued more on the potential of its lithium projects in Western Europe, but it has made progress on the ground at its Mutamba mineral sands project in Mozambique recently, so it’s quite possible the market could wake up to the value that’s on offer there in the event of a significant increase in the mineral sands price.
Spot prices of ilmenite and rutile have already risen by around 20% since the summer, indicating that the market has already experienced significant tightening this year.