NEAR TERM PRODUCER - TiO2
Titanium dioxide prices are expected to double by 2015
Message: Euro Pacific Canada comments on Argex Titanium Inc. Oct. 17, 2014
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Euro Pacific Canada comments on Argex Titanium Inc.
According to Euro Pacific Canada:
http://personal.crocodoc.com/s3G97oO
October 17, 2014
Argex Titanium Inc.
Spec Buy Rating
$1.60 Target Price
Investment Thesis: Argex Titanium Inc. has a revolutionary new process technology that is expected to provide competitive cash costs, and a high quality and high grade titanium dioxide (TiO2) pigment. Argex has the potential to become one of the lowest cost and relatively more environmentally friendly TiO2 pigment manufacturing operations in the world. We are revisiting the name following our attendance at the TiO2 World Summit 2014 and our related highlights note.
- Innovative New Process: Argex has developed a novel, chemical process for the manufacturing of a high purity (99.8%) TiO2 pigment product for use in architectural and other applications (plastic, cosmetic, food, etc.), using the relatively inexpensive and plentiful ilmenite feedstock material. The Company’s CTL Process uses solvent extraction technology and is expected to become a low cost, environmentally friendly alternative over conventional TiO2 production methods. Feasibility Study cash costs of ~$1,500/t, which include transportation, feedstock, and finishing costs, but exclude potential by-product credits, compare favourably to major global pure play pigment manufacturers, with current average costs above US$2,000/t TiO2.
- Aggressive Growth Plans: Argex is currently pursuing financing for its first plant, and expects to be in production within 24 months of construction startup. Argex also has mid-term plans to double TiO2 production through the construction of a second processing plant. Additionally, the Company has the potential to produce a significant amount of ferric chloride (FeCl3) by-product, which could reduce estimated cash costs to less than $1,000/t of TiO2, depending on FeCl3 prices and volume sales.
- Secured Major Off-take Partners: In 2012, Argex signed a technology collaboration with PPG Industries Inc., one of the world’s largest paint companies, to develop and optimize TiO2 pigment for paints and coatings, combining PPG’s coatings technology and expertise with Argex’s TiO2 proprietary processing technology. The Company and PPG have recently expanded their collaboration by entering into a long-term supply agreement. Argex has also secured an additional supply agreement with Helm US Corp., a subsidiary of Germany-based chemicals marketing company Helm AG (Private). We believe the two agreements are a validation of the commercial potential of Argex’s pigment product and process technology and comprise up to 75% of the Company’s target capacity.
- Next Steps: Argex has completed a definitive Feasibility Study and a pilot plant optimization program, and has started preliminary engineering work with equipment vendors for the procurement of long lead items. The Company is in the process of raising project financing for the construction of its first 50,000tpa production plant in Valleyfield, Quebec. Argex has advised that it is seeking to finance the plant with minimum dilution, possibly two-thirds debt. The main catalyst for the stock going forward is the completion of plant financing. The Company may also announce additional off-take agreements.
- Positive Pigment Demand: Demand for pigments seems to have improved since 2013; prices have stabilized above $3,000/t and are showing signs of a slight increase in some regions. Industry forecasts to year 2020 show an increase in demand for pigments of at least 2.5% per year but potentially as high as 5.4% per year. Feedstock stockpiles are at high levels and prices are likely to fall further, which should benefit pigment producers in the near term by lowering their production costs.
Valuation: We have a Speculative Buy rating and 12-month target price of $1.60/shr. on Argex Titanium Inc.
http://personal.crocodoc.com/s3G97oO
October 17, 2014
Argex Titanium Inc.
Spec Buy Rating
$1.60 Target Price
Investment Thesis: Argex Titanium Inc. has a revolutionary new process technology that is expected to provide competitive cash costs, and a high quality and high grade titanium dioxide (TiO2) pigment. Argex has the potential to become one of the lowest cost and relatively more environmentally friendly TiO2 pigment manufacturing operations in the world. We are revisiting the name following our attendance at the TiO2 World Summit 2014 and our related highlights note.
- Innovative New Process: Argex has developed a novel, chemical process for the manufacturing of a high purity (99.8%) TiO2 pigment product for use in architectural and other applications (plastic, cosmetic, food, etc.), using the relatively inexpensive and plentiful ilmenite feedstock material. The Company’s CTL Process uses solvent extraction technology and is expected to become a low cost, environmentally friendly alternative over conventional TiO2 production methods. Feasibility Study cash costs of ~$1,500/t, which include transportation, feedstock, and finishing costs, but exclude potential by-product credits, compare favourably to major global pure play pigment manufacturers, with current average costs above US$2,000/t TiO2.
- Aggressive Growth Plans: Argex is currently pursuing financing for its first plant, and expects to be in production within 24 months of construction startup. Argex also has mid-term plans to double TiO2 production through the construction of a second processing plant. Additionally, the Company has the potential to produce a significant amount of ferric chloride (FeCl3) by-product, which could reduce estimated cash costs to less than $1,000/t of TiO2, depending on FeCl3 prices and volume sales.
- Secured Major Off-take Partners: In 2012, Argex signed a technology collaboration with PPG Industries Inc., one of the world’s largest paint companies, to develop and optimize TiO2 pigment for paints and coatings, combining PPG’s coatings technology and expertise with Argex’s TiO2 proprietary processing technology. The Company and PPG have recently expanded their collaboration by entering into a long-term supply agreement. Argex has also secured an additional supply agreement with Helm US Corp., a subsidiary of Germany-based chemicals marketing company Helm AG (Private). We believe the two agreements are a validation of the commercial potential of Argex’s pigment product and process technology and comprise up to 75% of the Company’s target capacity.
- Next Steps: Argex has completed a definitive Feasibility Study and a pilot plant optimization program, and has started preliminary engineering work with equipment vendors for the procurement of long lead items. The Company is in the process of raising project financing for the construction of its first 50,000tpa production plant in Valleyfield, Quebec. Argex has advised that it is seeking to finance the plant with minimum dilution, possibly two-thirds debt. The main catalyst for the stock going forward is the completion of plant financing. The Company may also announce additional off-take agreements.
- Positive Pigment Demand: Demand for pigments seems to have improved since 2013; prices have stabilized above $3,000/t and are showing signs of a slight increase in some regions. Industry forecasts to year 2020 show an increase in demand for pigments of at least 2.5% per year but potentially as high as 5.4% per year. Feedstock stockpiles are at high levels and prices are likely to fall further, which should benefit pigment producers in the near term by lowering their production costs.
Valuation: We have a Speculative Buy rating and 12-month target price of $1.60/shr. on Argex Titanium Inc.
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Euro Pacific Canada, exerpts August 2014
Off-Takes Account for Significant Percentage of Future Production:
Off-take agreements now account for a majority of the Company’s future production of TiO2. Argex previously announced a long-term supply agreement with PPG Industries Inc. (PPG:NYSE, NR), one of the world’s largest paint companies. We believe this agreement comprises 15,000-20,000tpa TiO2. Thus, the two agreements combined comprise up to =0-90% of Argex’s intended capacity.
ß Helm is a Multi-Functional Marketing Organization in the Chemical Sector and a Major Distributer of TiO2: Helm is headquartered in Hamburg, Germany, and is one the of the world’s major independent chemical marketing firms with operations in 30 different countries through five business units including Chemicals, Crop Protection, Pharma, Fertilizer and Nutrition. Revenues of ~€10B in 2013 were largely generated in Europe (<1%) followed by America (24%), Asia (14%), and Africa (1%). The new agreement is expected to increase Helm’s exposure to the US. Its TiO2 distribution ability likely exceeds 25,000tpa.
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