Diatreme signs MoU of zircon deal with China

Aug. 11, 2010 - China's quest to secure long-term supplies of metals and minerals to feed its industrialisation and urbanisation boom has led to another mining deal - with mineral sands junior Diatreme Resources.
BaoTi, the leading zircon and titanium fabrication group in China, has signed a memorandum of understanding with Diatreme that could lead to further equity investment in Diatreme and BaoTi becoming a joint-venture partner in Diatreme's Cyclone project in the Eucla Basin in Western Australia.
The deal has raised speculation that the market-dominant Iluka Resources could be next to get a visit from the Chinese, the world's biggest consumer of zircon.
It is known that Iluka has been approached by Chinese interests in the past but no formal offers have been made.
Iluka produces one in every three tonnes of zircon produced globally. It also has a wide-open share register and is only just beginning to reap the benefits of a heavy investment program that switched its focus from WA mining and processing operations to zircon-rich operations in Victoria (Murray Basin) and South Australia (Eucla Basin).
Zircon is used in ceramics, refractories, abrasives and TV glass and has growing high-technology applications in fuel cells.
Zirconium metal is used in fuel rods in the nuclear power industry, an industry that China plans to expand aggressively to combat air pollution.
China's zircon production accounts for only 10 per cent of its consumption.
While Iluka is the established leader in the mineral sands industry, Diatreme has a way to go before it becomes a producer. Earlier this year, Diatreme released results from a ''scoping'' study into the development of Cyclone.
It suggested an operation producing 280,000 tonnes a year of heavy minerals concentrate had the potential to generate an annual profit of $50 million for 10 years. Projected capital expenditure costs were $311 million.
That was out of reach for Diatreme - the reason it has struck the MoU with BaoTi.
Diatreme executive chairman Tony Fawdon said the Cyclone deal opened the way for an injection of investment funds on a scale beyond anything likely under present market circumstances through traditional debt and equity means.