Erdene management believes that significant value and stability can be added to the company through investment in select industrial minerals projects.
Management has considerable experience in both the kaolin and construction aggregate industries. We believe both of these commodities have strong long-term market fundamentals and offer opportunities with significant upside potential by generating future cash-flow for the company.
Industrial Minerals like construction aggregate are mainly used by the construction and agriculture industries. Data from the U.S. Geological Survey (USGS) indicates that aggregate used in the U.S. in 2007 was equivalent to 7.8 tonnes per person per year. This equates to 2.83 billion tonnes sold valued at US$22.5 billion with the average price per ton rising 8.7%.
Erdene is focused on market opportunities in the south-eastern U.S. where population growth and urban sprawl has increased demand for construction aggregate materials. There was a 75% increase in U.S. aggregate imports into the southern states from 2002 to 2006. The USGS has estimated that U.S. aggregate demand will increase by an additional 1 billion tons by 2025.
Compounding the gap in demand and supply, local zoning regulations and land-development alternatives are making permitting of new aggregate operations increasingly more difficult. Because of this, there is a significant opportunity to bring new high quality construction aggregate projects online, including project outside the U.S. located on tidewater for bulk carrier shipping into U.S markets.
Kaolin is a white clay commonly referred to as china clay. The greatest demand for kaolin-based pigments (80%) comes from the paper industry but it is also used in paints, plastic, rubber and ceramics where it provides brightness, colour and particle shape properties.
The ceramic clay market provides an emerging opportunity in North America as clays typically supplying this market from Europe are being depleted. High quality kaolin from Europe has been used extensively in North America for the production of high quality porcelain ceramics and more recently in the industrial grade dinnerware, sanitary ware, tile and glazing clay applications.
Erdene’s interest in kaolin is through its majority interest in Advanced Primary Minerals (APM). APM is working with industry leaders on the development of a new line of products from the company’s primary kaolin resources for the ceramics industry. Testing to date has been very positive and initial production from the company’s new processing facility in Dearing, Georgia, will focus on casting clays and glazes. Commercial production is expected to be underway in mid 2009.
