Geratech is currently in an advanced stage of a zircon beneficiation project. This project is soon to be fully commercialized.
1. PROJECT OVERVIEW
1.1. Project Description
The project entails the construction and commissioning of a new, robust, first-world zirconium chemicals and oxide plant in Chamdor, Gauteng Province, South Africa. The plant has a production capability of 16 000 metric tons of zirconium oxychloride per annum. This will serve as feedstock for the production of a range of chemicals and oxides based upon the beneficiation of domestic zircon. The plant will be constructed and commissioned on a lump sum, turnkey basis by a highly reputable engineering contractor. The lion’s share of other raw materials will also be sourced locally.
1.2. Business Concept
The business concept is to utilise a well-developed technical and commercial knowledge base to convert locally mined zircon into higher value zirconium oxychloride and using this as feedstock into downstream zirconium chemicals and oxides. The business is based on a R250-million research and development investment over more than a decade through university laboratory to bench pilot plant to pilot plant to a semi-commercial plant (the majority on the current site).
These phases resulted in the acquisition of technology, commercial know-how, a potential customer base, plant design parameters and regulatory permits required for the production and sale of zirconium value-added chemicals & oxides that have applications in some 60 industries worldwide.
1.3. Project attractiveness
The clearly identified advantages of manufacturing zirconium chemicals in South Africa are:
|•||South Africa and Australia are by far the world’s largest producers of zircon.|
|•||Australia does not produce zirconium chemicals.|
|•||China has a monopoly on zirconium chemical production based in imported zircon.|
|•||Geratech will source zircon domestically, resulting in a significant cost and supply risk advantage.|
|•||South Africa still has, by western standards, low production costs (low energy inputs).|
|•||South Africa’s legal system and philosophy facilitates reliable technical and other co-operation with customers.|
|•||Well supported by the South African Government (IDC, TIA, DTi).|
1.4. Project status
Geratech Zirconium Beneficiation Ltd. (Geratech) completed an independent definitive bankability feasibility study in February 2013, following the successful completion of a technical review, pre- feasibility studies and engineering design of the new plant. The latter was conducted over a 3-year period that consolidated all the R&D and piloting work to date.
In 1998, Geratech was founded by Ignatius de Wet as a result of the R&D programs on zirconium beneficiation of the University of Pretoria and the South African Atomic Energy Corporation. Its origins thus reside within laboratory experimentation by dedicated entrepreneurs. The process subsequently successfully advanced to a pilot plant exporting high-grade zirconium chemicals to markets abroad, in particular the United States and the European Union with over 5 years track record.
In the progression a very solid industry-specific knowledge base was acquired. Development of the business took place within the means at the company’s disposal, which resulted in bootstrapping. Despite this piece-meal approach, Geratech’s investments into R&D, piloting and semi-commercial operations have mitigated commercialization risks and reduced the high entry barriers associated with zircon beneficiation. Pilot operations created a solid technical and commercial knowledge base on zirconium chemicals and oxides, a well-developed product range, a customer base, key process parameters, standard operating procedures and licenses and production permits, including nuclear permits. Local supply networks were also developed for zircon and other raw materials.
Geratech is the only company in Africa to have successfully produced about 2,000 tons across a range of 12 different zirconium products on a demonstration plant scale. It has successfully marketed and obtained product approvals from various customers across a variety of industries globally. Its customers include market leaders such as Exxon Mobil, BASF, Huntsman and WR Grace.
To date, approximately R250 million has been invested in the company, the bulk of which was applied to the development of know-how and technology for the production of value-added zirconium products, thereby mitigating the risks associated with commercialization.
Following successful production campaigns of several hundreds of tons through the Chamdor pilot plant in 2009, it had become obvious that for Geratech to attain its true potential a much broader perspective was required, and a paradigm shift had to be made. The piece-meal approach of de-bottlenecking production constraints was abandoned and resources focused on designing a modern, robust and reliable full service plant. Geratech is eminently suited to apply their knowledge and skills base to achieve this goal and unpack the opportunity.
The IDC led Shareholders to a decision to consolidate all completed work into a structured project for purposes of assessing the viability of large-scale commercialization. This has led to a project mode that consisted of a Technical review, Pre-feasibility and Bankable Feasibility Studies. The R&D and pilot work to date were to serve as the basis for this continued Project development.
Following the successful completion of a Bankable Feasibility Study, it became evident that the commercialization of zirconium beneficiation on the proposed scale is a very viable proposition. The project outlook appears to be positive and the commercialization risks sufficiently mitigated to ensure a robust project with all the risks mitigated to an acceptable level.
The Project delivers an Equity Internal Rate of Return of some 28% nominal. Break-even volumes are reached at only 20% of capacity. The implication hereof is that operating cash flow is positive from a low capacity utilization.
Backed by the Industrial Development Corporation of South Africa (“IDC”) and the Technology Innovation Agency of South Africa (“TIA”), the leading shareholders, Geratech has appointed a Transaction Advisor and Lead Coordinator that will, during the period March – December 2013, engage various entities to raise the required debt and equity.
The Project Promoters are seeking suitable partners that could participate by means of equity and/or debt funding and/or operational expertise. Syndication will likely be required for financial close and therefore a strategic fit will be important.
Investment returns are far above average, cash flow is robust, all raw materials are available domestically and the existing unique core skills base lowers the barrier to entry substantially. In addition, further local expertise can be drawn from the domestic mining, metallurgical and chemical industries.
The market requires and would welcome an alternative supplier and the South African geographic location to supply global markets is ideal. Additionally, the challenges associated with the designing, constructing and commissioning of a new plant are well-defined, recognized and mitigated following thorough R&D, piloting and semi-commercial production runs, and the independent studies that include a technical review, PFS and a definitive BFS.
Opportunities to create whole industries of global significance, based on the supply of domestic resources, are indeed rare. The key South African development institutions are “driving the Project,” but require additional equity investment to achieve a fully funded Project.