Resource Investing News - Opportunities for Juniors in Aggregate

679
-1

Published on

Aggregate production — mining of ordinary stone for construction — fetched nearly $17 billion in the United States in 2012, according to the US Geological Survey.

Published in: Business
0 Comments
1 Like
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total Views
679
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
2
Comments
0
Likes
1
Embeds 0
No embeds

No notes for slide

Resource Investing News - Opportunities for Juniors in Aggregate

  1. 1. Opportunities for Juniors in AggregateTuesday April 23, 2013, 4:15am PDTBy Dave Forest - Exclusive to Resource Investing NewsAggregate mining is not a glamorous business, but it’s worth alot of money.Aggregate production — mining ofordinary stone for construction —fetched nearly $17 billion in the UnitedStates in 2012, according to theUS Geological Survey.To put that into perspective, thecopper industry in America was worthonly $9 billion during the same year.And even though the US is a top goldproducer — putting out $12.6 billionworth of bullion in 2012 — that outputwasn’t close to beating aggregate.Not only is aggregate a big business, but it’s also on the rise. Whiledemand for many mined products has stalled, the need for sand andgravel is surging for the first time since the financial crisis in 2008.That signals that the industry may be an unexpected moneymaker inan otherwise subdued commodities sector.How can the digging of crushed bits of rock be such a big business?And what do producing companies need to do to make a profit inthe sector?Breakin’ rocksThe world uses two major types of aggregate.Crushed stone is cut from quarries and then pulverized into
  2. 2. workable-sized pieces. The lion’s share is used for roadconstruction, but some crushed stone also goes into cement andlime manufacturing.The traded value of this road crush: $11 billion in 2012 for the US.The other big aggregate product is sand and gravel — naturaldeposits of small rock pieces that can be used with little or noprocessing.Construction is again the big driver for this business. Most sand andgravel is used to make concrete or asphalt. A good chunk also goesto building and stabilizing road bases.American sand and gravel trade totaled $6.4 billion in 2012.Record pricesToday’s prices for aggregates are running hot compared withhistorical levels.In 2012, estimated prices for both crushed stone and sand andgravel hit all-time highs in the US, with a metric ton (MT) of crushselling for $9.78, while sand and gravel went for $7.65 per MT.The record prices came along with an unexpected rebound inconstruction demand.Following the financial crisis, US aggregate demand plummeted.Between 2008 and 2009, crushed stone consumption dropped 20percent, from 1.5 billion MT to 1.2 billion MT. Sand and gravel useplunged 21 percent, from 1.06 billion MT to 0.83 billion MT.Demand stayed flat through 2010 and 2011, despite talk of big,stimulus-related infrastructure spending for construction projects.But things have shifted gear during the past year. In 2012, crushedstone consumption jumped by 80 million MT, or 6.7 percent, the firstincrease in consumption since 2006.Sand and gravel consumption grew 40 million MT, or 5 percent, in2012.
  3. 3. A changing businessWhy are aggregate prices hitting records even as consumption —while growing — still remains well below the salad-days levels seenbefore the financial crisis?In short: it’s getting harder and harder to open a gravel pit thesedays.With environmental and permitting regulations on mining becomingever more strict, there are a lot of hoops to jump through to put evena small aggregate pit into operation. Especially because these minesare usually located near cities, where construction demand is. Urbandwellers simply don’t want to live next to a hole with noisy machines.Protests over new pits mean fewer are getting built.In the sand and gravel business, for example, although prices haveincreased 35 percent between 2005 and today, the number ofmining operations across the US has stayed constant, at around6,500.American sand and gravel production therefore sits at 842 million MTyearly, a hair below the 845 million MT consumed annuallythroughout the nation.For more mechanized crushed-stone operations, the lack of newmining is even more apparent.While new crushed-stone quarries have been opening — the numberin the US stands at around 4,000, up from 3,100 in 2005 —production is not keeping pace with demand.Total output (plus a small amount of recycling of crushed stone) hit1,268 million MT in 2012. But consumption came in at 1,280 millionMT.In fact, America actually imported a small, but significant, amount ofcrushed stone during the year: about 14 million MT.The opportunityGrowing demand, attractive prices and a tighter productionenvironment open up some interesting ways for enterprising
  4. 4. aggregate producers to make money.The biggest challenge for the business is transportation: how tomove product from easier-to-permit pits in less-populated locales tohigh-value construction markets in big urban centers.Rail — a common solution for moving commodities like base metalconcentrates — generally doesn’t cut it for less concentratedaggregate products. Only 1 percent of aggregate sold in the US ismoved to market by train.A more viable solution is marine transport. Producers in theBahamas use this method to ship a few million MT of stone, sandand gravel to US markets each year.On the same note, Polaris Minerals (TSX:PLS), operator of the Orcaquarry and a major shareholder in the Eagle Rock quarry project,both of which are situated on the coast of Vancouver Island, ships itsproduct to major coastal markets in BC, California and Hawaii. Itplans to extend its reach through the active development of furtherport receiving terminals.Similar opportunities exist for companies with deposits near shippingchannels. Highbank Resources (TSXV:HBK) is eyeing this approachto access sand, gravel and hard-rock aggregate resources at itsSwamp Point project, which sits on tidewater near Stewart, BritishColumbia.While shipping could be an option, the company may not end uphaving to send its aggregate far from home. With the development oflarge, liquefied natural gas projects planned for the nearby PrinceRupert area, there may be significant local demand for buildingmaterials.That represents another potential strategy for aggregate developers:build mines in industrial areas, close to demand and far fromobjecting homeowners.Sand and gravel producer Athabasca Minerals (TSXV:ABM) has gonethis route. The company operates pits in the midst of the Alberta oilsands, a major demand center.
  5. 5. Athabasca sold nearly 11 million MT of aggregate in fiscal 2012,driving net income of over $4.7 million and leading the stock to asmuch as a 270-percent gain during the past year.That’s just a reminder of what the potential could be in a “boring”and often overlooked sector.Securities Disclosure: I, Dave Forest, hold no investment interestin any company mentioned in this article.  

×