This article is a sponsored feature from Mining.com.au partner WA Kaolin Ltd. It is not financial advice. Talk to a registered financial expert before making investment decisions.
When considering lesser-known minerals, perhaps none represent ‘quiet achiever’ status more effectively than Kaolin.
The platy white clay punches well above its weight from a utility standpoint, being a key component in the manufacture of paper and plasterboard, ceramics, fibreglass, paints and coatings, plastics, rubber, pharmaceuticals and medicine, cosmetics, concrete construction materials and agriculture.
And what many people may be surprised to learn is that Western Australia is home to the world’s largest known remaining premium primary kaolin resource.
WA Kaolin, an ASX-listed mineral exploration, extraction, and processing company, is the exclusive owner of the Wickepin Kaolin Project located 220km south-east of Perth. The project sits on a JORC-2012 current inferred Mineral Resource of 644.5 million tonnes of ‘premium’ kaolinised granite, with the Ore Reserve in the mining tenement holding over 100 million tonnes of ‘extremely high grade’, easy access kaolin.
The company has been quietly and methodically developing itself in Asian and global markets since the late 1990s, and is now ready to expand on the back of its new processing plant which is set to kick off Stage 1 production in mid 2022.
Wickepin comprises four retention licences (R70/40, R70/42, R70/43, and R70/44) and a single mining lease (M70/1143), with the combined area exceeding 10,000 hectares.
Owners and co-founders well and truly have skin in the game, having invested over $42 million (pre-IPO) in the project since its acquisition from Rio Tinto in 1999.
This world-class resource is noted for its purity, quality, and brightness, which has been commanding premium prices from a growing list of top-tier customers.
The project is ideally placed in a safe, stable, and proven jurisdiction, with the support of a vibrant regional community and easy access to existing infrastructure including roads, trains, and ports, for exporting to a range of growing markets.
Proprietary K99 processing technology delivers competitive advantage
WA Kaolin has invested ‘substantial’ time and money into developing a proprietary processing method known as K99 that transforms raw material into market-ready feedstock for international customers.
The technology has been developed and tested via a pilot plant in Kwinana, Western Australia, with a current capacity of 20,000 tonnes per year, and has been successful in generating ultra-bright kaolin at a low production cost compared to competitors.
This technology is set to be fully exploited at Wickepin’s new processing plant, which will use the method to facilitate first production in mid 2022. Output will kick-off with a 25 tonne per hour nameplate capacity before increasing to around 200,000 tpa by December 2022, and 400,000 tpa during 2024.
“The K99 process delivers a high-quality, ultra-bright kaolin at a lower cost than conventional bleaching / magnetic separation”
CEO Andrew Sorrensen explains: “WA Kaolin remains on track to reach first production at Wickepin in Q2 this year using the proprietary dry processing method we have developed, known as K99. The K99 process delivers a high-quality, ultra-bright kaolin at a lower cost than conventional bleaching / magnetic separation.”
Kaolin market set for growth in volume and price
Global demand by volume for Kaolin was 30.6 million tonnes in 2017, and is predicted to expand at a CAGR of 4.4% between 2017 to 2025, reaching 43.1 million tonnes.
In 2017 the Asia Pacific kaolin market accounted for 37.6% of worldwide volume share. Over the projected period through to 2025, fibreglass and ceramics are expected to be the fastest expanding uses for kaolin in the region. In recent years, the industry has seen an increase in the number of ceramic production enterprises in China, and this trend is projected to continue.
“Kaolin has a very broad and growing number of applications driving this expansion. It is traditionally known for uses in paper making, fine porcelain, ceramics, paints, fibreglass, and as fillers for rubbers and plastic.
There are also high-tech uses emerging that will potentially increase demand further, including applications for high-purity aluminium derived from kaolin, which is used in specialty glass products, lithium-ion batteries and other products.”
Imerys, Quarzwerke (Sibelco), and BASF dominated the global market in 2017, accounting for approximately 26% of global production. Imerys alone accounted for 16.3% of the market. Asian producers generate a significant amount of product, but generally at a lower quality level.
The closure of several kaolin producers and a tightening of supply have resulted from pressure from Chinese officials to enhance environmental and safety requirements. Over the previous five years, the market has gone through a consolidation phase, with major producers such as Imerys acquiring assets from competitors.
The paper sector, which uses kaolin as a filler or coating, was the largest consumer of the mineral in 2017, accounting for more than 40% of the global market share in terms of volume. Kaolin improves the printability of paper by increasing gloss, smoothness, brightness, and paint absorption.
Kaolin is also frequently used in the fibreglass manufacturing process, and rising demand for this product from the automotive, marine, and aerospace industries is expected to boost demand over the coming years.
Further growth in the ceramics segment is expected to continue, owing to an increasing demand for kaolin as it improves the end product’s durability, as well as its smoothness and whiteness.
Strong offtake partnerships
The company notes that customers have already signed offtake agreements for 100% of current output at Kwinana, while additional offtake contract conversations for expanded production are positive and ongoing, with one existing client signing a letter of intent for around 40% of production during the first three years during ramp up.
“A Taiwanese distributor executed a 10-year distribution agreement with a six-year offtake agreement. The target offtake is 432,000 tonnes of kaolin over the six years”
“Demand for WA Kaolin’s products from existing customers is driving the expansion timing and strategy of our Wickepin Project. A Taiwanese distributor executed a 10-year distribution agreement with a six-year offtake agreement. The target offtake is 432,000 tonnes of kaolin over the six years.
In the first three years of production at Wickepin, the total distributor offtake is 271,000 tonnes, which when coupled with non-binding letters of intent of 280,000 tonnes from other customers, amounts to 551,000 tonnes across the first three years. This represents 83% of our targeted production (664,000 tonnes) for those years.
WA Kaolin continues to progress negotiations with other customers for additional offtake agreements.”
A focus on quality
Sophisticated buyers are recognising the benefits of Kaolin quality and brightness, which is creating significant opportunities in the industry for premium producers.
“WA Kaolin is initially targeting more traditional kaolin markets with its high-quality product. Our resource at Wickepin is very pure and is ideal for each of the traditional uses. The high purity and brightness of WA Kaolin’s product means it will typically attract a higher price than the market average.
“WA Kaolin is developing processing for ultra fine kaolin grades. This will enable us to achieve a very high quality material that will be suitable for the paper industry”
In addition to the current staged capacity expansion program at Wickepin, WA Kaolin is developing processing for ultra fine kaolin grades. This will enable us to achieve a very high quality material that will be suitable for the paper industry. The paper industry is growing off the back of applications in the packaging industry.”
In recent years, kaolin producers have announced price increases, with some attributing this to ensuring long-term stability amid continued investment to meet regulatory requirements and increase production. Others have increased prices due to rising labour costs and increased demand, particularly from the paints and coatings applications.
Experienced team with skin in the game
WA Kaolin is led by Chief Executive Officer Andrew Sorensen, with support from a diverse board who bring experience in a range of disciplines.
“The broad and extensive experience of WA Kaolin’s Board of Directors has been a key factor that has taken the Company to the verge of production at the Wickepin Project. The senior executive team have a wealth of experience in the Kaolin market and having led the project for more than 20 years and have significant “skin in the game”. The entire team has a strong background in project delivery and business development, including in the mineral and resources industries. WA Kaolin’s commitment to supporting and engaging the communities in which it operates in Western Australia is backed by the values of its Board members.”
With substantial funds invested in purchase of the project, environment, permitting, marketing, and capital expenditure (capex) initiatives in support of the multi- generational mine life and long-term prospects of the firm, the founding directors have de- risked the route to profit. The company has built what it describes as a ‘tier 1’ global customer base as a result of this.
Big expectations for 2022
2022 is set to be a milestone year for WA Kaolin as it moves towards Stage 1 production at its Wickepin processing plant, buoyed by a recent $12 million fund raise.
The funding, which includes a combination of placement, share purchase plan and debt, will support the completion of Stage 1 infrastructure, along with pushing-forward plans for Stage 2 operations.
Installation and pre-commissioning is scheduled for completion in February, with first production on track for Q2.
“We are thrilled to be in the position to be able to facilitate the acceleration of Stage 2 through the successful completion of Stage 1 on time and within budget and the Company’s foresight in implementing some of the Stage 2 infrastructure during Stage 1 commissioning.
Our initial Stage 2 Capex was estimated at $13.6 million, as per our Definitive Feasibility Study, and contemplated as being funded out of Stage 1 cashflow. Inflationary impacts largely as a result of the COVID-19 pandemic have cautioned the Company to provide a contingency for an additional $2.4m in Stage 2 (i.e., $16m total).
Based on ~$4m spent (on Stage 2) during Stage 1 and the fact that the Company has achieved Stage 1 work to date on time/on budget, Stage 2 is likely to be brought on stream in less than 12 months for an additional circa $12m.”