Tuesday, 19 June 2012

Jefferies analyst digs into PPG Industries collaboration with Argex Mining

Argex Mining's (CVE:RGX)(OTCBB:ARGEF) recent collaboration deal with PPG Industries (NYSE:PPG) was the subject of a
recent analyst note from securities and investment banking group Jefferies.

In April, Argex entered into a technical collaboration agreement with PPG to develop and optimize PPG's technology for titanium dioxide (TiO2).

The goal is to develop a titanium dioxide product that can meet conventional standards for interior and exterior paint and coatings applications, to be produced by Argex.

"Recent discussions with Argex Mining shed light on the recent collaboration agreement for TiO2 with PPG," Jefferies analyst Laurence Alexander said in a note.

"While still in the pilot phase, Argex believes regional availability of waste ilmenite tailings will enable a cash cost of around $1,000 per tonne, with a capital cost of $60 million for its planned 50,000 tonnes per year facility.

"Such figures imply a payback of less than 1 year. We expect clarity on sources of funding around year-end."

Argex is a junior Canadian resource company that is developing the advanced stage La Blache titaniferous magnetite project, and also owns the Lac Brûlé high grade ilmenite and the Mouchalagane iron ore projects, which are all located on Quebec’s North Shore.

Argex recently achieved a "milestone breakthrough" for the iron recovery circuit at its pilot plant in Mississauga, Ontario, where its patented CTL process is running continuously.

The company hopes to scale-up its proprietary, hydrometallurgical CTL process that allows it to produce high purity, "pigment-grade" titanium dioxide (TiO2) directly from run-of-mine material at its 100 per cent-owned deposit.

The process is running continuously at the mini-plant in Mississauga, Ontario.

Waste ilmenite, from mining operations in Canada, should "noticeably lower cash costs, capital costs, and start-up time" for PPG, the analyst said.

"Using its solvent-based extraction technology, Argex's TiO2 cash costs could be around $1,000 per tonne. This compares to current TiO2 prices of around $4,500 per tonne in Europe.

"Such a grade of ilmenite would also allow Argex's planned facility to produce as much as 50,000 tonnes per year of TiO2 for the same $60 million investment (the higher grade reduces processing bottlenecks)."

"While theoretical, Argex's estimated cash cost would save PPG $175 million assuming it sources 50,000 tonnes per year of TiO2 at cost from Argex," the Jefferies analyst said.

The Jefferies analyst sees pilot plant production scaling rapidly but remains small at 3 kg per day. This should increase to at least 10 kg per day by mid-June, which could help Argex qualify its TiO2 for a variety of PPG's architectural coatings.

Argex expects to finish its feasibility study for its full-scale facility by year-end, at which point the company will assess funding options for the expected $60 million capital cost, Jefferies' Alexander said.

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