Investors put their money in all sorts of commodities and far-flung places. But there is one product that people seem to ignore which is just as lucrative. I have been looking at the silica market since the early 2000s. I looked at projects in Malaysia, met the vendors and realised that they did not even own the tenements. Then there was the Sri Lankan project, then the one in the Philippines and the last one was in Indonesia.
I knew Australia had good projects, but the market was just too far away. The economics did not allow a review until my recent research into the silica market. It appears that the market has done some shifting, and things are not as it seems. Transportation cost appears to be no longer a barrier and products have changed. Technological changes have created products that have a higher value and created a niche market.
What is Silica?
Silica is simply silicon and oxygen. Silicon and Oxygen are two of the most common elements on the planet. Crystalline silica is the most common form, and it makes up over 12% of the earth’s crust, making it the second most common mineral on the planet.
Crystalline silica comes in the forms of quartz, cristobalite and tridymite. Quartz is the most common of these, which transforms into cristobalite when heated at high temperatures (over 1450 °C). Non-geologist will call these particles white sand. The same white sand that you see in those exotic beaches is what pure silica looks like as a product.
For thousands of years, crystalline silica was a beneficial mineral used to make products for building structures. Crystalline silica is present in thousands of different raw materials, including almost all types of content extracted from the earth’s crust. It is present in virtually all materials that are quarried, including sand, clays, gravel and metallic ores. It is hard, chemically inert, and has a high melting point, qualities which make it a valuable raw material for many industrial and manufacturing processes.
Why are we talking about it?
When we talk about commodities, we would mention, nickel, iron ore, copper, gold, lithium….etc. Not many people would put silica into that sentence. Silica is like the fundamental component of almost everything that we need as the all-consuming human species. There are very few items in our daily life that do not involve some percentage of silica. Unless you are living in solitary confinement, you will have windows, and that is silica. It is mind-boggling that most people do not think about silica as a sought after commodity.
It is an irreplaceable ingredient in lots of high-tech applications, for example, precision casting, fibre-optic cables, and the raw materials for computer chips. It is present in our computers and phones. It is even key to the infrastructure of the internet, renewable energy and telecommunications.
It is a vital part of how we get around – our cars and buses, roads and railways.
Our homes are made from it – rocks, glass and ceramics, and many of the things we use every day contain or rely on crystalline silica. For the handy type of people, think life without the silicone gel. How would we fix those little things in the house without silicone gel?
In all of these everyday contexts, crystalline silica is entirely safe. It is inert, meaning that it does not react with any chemicals, and it is not harmful to health.
Availability as a commodity.
Silica is quartz, and when you have a silica deposit, you have a quartz deposit. The purity of SiO2 is what determines the grade. There are a few deposits where the purity is in the 99%+ range, but the majority are not up to the grade.
Recently, there have been a lot of countries, such as Vietnam, the Philippines and Indonesia that have announced that they will not be exporting sand anymore. These are not the high-grade sand. These are more about the construction, landfill grades. The restriction imposed on importing these low-grade sand may have shifted this market into a higher value status.
Silica is not rare like cobalt or tungsten or nickel sulphide deposits, but the market is not straight forward. The high quality “grade” is significant, and then there are the size fractions. Finding a deposit that has the consistency of silica grade and a lack of impurities is not easy. This combination of chemistry and size fractions will determine which market you can participate, and then your location will also come into play.
Hence, as simple as the product is, there is a measure of complexity that makes this market unique. Once you have sorted all of this, you need to find your buyer. What could quickly stop a project is if the deposit is logistically challenged.
There are two companies that I know in the ASX who play in this space, VRXSilica (ASX: VRX) and Diatreme Resources Limited (ASX: DRX). VRXSilica is entirely a silica company whereas Diatreme has other projects in zircon, gold and copper. The projects are worthy of more than a glance. Diatreme has its projects that adjacent to the Cape Flattery Silica Mine which is being mined by Mitsubishi. Cape Flattery was discovered in 1967, Mitsubishi purchased the mine in 1977 and in 1987 a deep water jetty was built. Cape Flattery Silica Mines employs over 80 people (source: Cape Flattery Mine).
The Cape Flattery Silica Mine gives you a good indication of how profitable a silica project can be if you get everything lined up.
Disclaimer
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