WHAT A GEOLOGIST NEEDS TO KNOW ABOUT MARKETING AND

TRANSPROT OF INDUSTRIAL MINERALS

Spring 2018

SAFETY

The major difference between mining metals and industrial minerals is the separation of metals and markets (guaranteed) and the interconnection between industrial minerals and markets Another important difference is the variability of price, metals defined by international markets, industrial minerals is negotiated

IM Marketing Summary Table Market Characteristics Commodity Minerals Specialty Minerals Place value High (transport sensitive) Low (transport insensitive) Volume Large Small Unit price Low High Substitution Easy Hard Differentiation Less More Specifications Industry standard End-user customized Sample evaluation Short Long Properties & uniformity General Highly controlled Testing Standard Specific or customized Marketing & management style Business Technical Main sales basis Price (undifferentiated) Performance (differentiated) Time to first sale Short Medium to long Rate of market change Slow to moderate Rapid to moderate Need for laboratories and R&D Low High

Marketing is the exploration phase for

industrial minerals and rocks

Marketing study

• Forecast demand • Plant capacity • Production costs • Net profit after transport, packing, storage costs,

delivery price, taxes

Marketing study report • Executive summary • Geology and resources • Mining and processing • World production • Leading producers • Production and processing by country • International trade • Consumption • End uses • Prices

FACTOR METAL IM Market type Undifferentiated Differentiated

Total value Lower ~33% Higher ~67%

Specifications Few Many

Buyer loyalty Low (price) High (perform)

Branding Uncommon Common

Marketing Low High

MARKETING versus SALES

Strategic Tactical Long Range versus Focused Customer (Long Term) Customer (Daily) |← Overlap →|

IMSEGMENTS

PERCEIVEDIMPORTANCE

PRACTICALIMPORTANCE

Marketing 5 1Transport 4 2Processing 3 4Mining 2 5Exploration 1 3

Geology dictates deposit existence

Markets dictate deposit development

Transportation

IM MARKET TYPES

Commodity = Product driven

Specialty = Market driven

GENERAL IM TYPE COMMODITY SPECIALTY

MARKETINGNEEDED ↓ ↑

TECHNICALSUPPPORT ↓ ↑

RESEARCH &DEVELOPMENT ↓ ↑

COMMODITY vs SPECIALTY EMPHASIS

Specialty Alone high value high risk Commodity Alone low value mod. risk Commodity + Specialty moderate value least risk

MARKET CHARACTERISTICS

COMMODITY MINERALS

SPECIALTY MINERALS

Place Value High (transport sensitive)

Low (transport insensitive)

Volume Large Small

Unit Price Low High

Substitution Easy Hard

Differentiation Less More

MARKETCHARACTERISTICS

COMMODITYMINERALS

SPECIALTYMINERALS

Specifications Standard Customized

Sample evaluation Short Long

Properties,uniformity

General Controlled

Testing Standard Customized

MARKETCHARACTERISTICS

COMMODITYMINERALS

SPECIALTYMINERALS

Market &Management style

Business Technical

Main sales basis Price(undifferentiated)

Performance(differentiated)

Time to first sale Short Medium toLong

Market change Slow to moderate Rapid tomoderate

Lab & R&D need Low High

MARKETING Market Study = What?

Market Development = Where? How?

MARKET STUDY

Commodity Survey — basic data, easy, past & present

Market Evaluation— forecasting, hard, future

MARKETING STUDY

Asking the right questions of the right people!

MARKET STUDY

• Exploration green field, grass roots • External inactive; active

(generally well known) • Internal inactive; active (new or

existing product)

Commodity Survey

• Existing Data – Financial – Production – Geological – Legal – Environmental

• Very minor forecasting

MARKET EVALUATION

• Forecasting (volume, price)

• Economic/Financial Analysis

• Specific Products

• Timing

• Location

APPROACH Industrial (Short time)

Consumer (Long time)

MARKETING ORGANIZATION

TYPES

In-house Distributors

Agents Merchants

Traders

MARKET POSITIONING STRATEGIES

• Low cost

• Differentiation

• Focus

• Segmentation

Major Markets • Agriculture • Ceramics • Chemical • Glass • Paints • Paper • Plastics • Refractories • New markets (critical minerals=solar, )

Ceramics

Chemicals

Glass

Paint, Paper, Plastics

Refractories

New Markets • Fuel cells, wind turbines, solar panels • Nanomaterials

– Particle size 1 to 100 nanometers (10 (-9) meters) – Clays, talc, titanium oxide, calcium carbonate – Chemical, mechanical, physical properties superior to

larger particles—fine crystal size and large surface area

– wood preservation, marine antifouling, thermoplastics, permanent coatings, environmental catalysts, deodorants, oral care, glass polishing, semiconductor polishing

SUMMARY Metals and IM’s require markedly different approaches

Marketing dominates industrial minerals

IM marketing style = industrial, not consumer

Marketing (strategic) and sales (tactical) differ

IM marketing evaluation = Ask the right questions

IM markets = commodity (product) or specialty (market)

TRANSPORTATION

TRANSPORTATION CONCEPTS

• Overall transport is 21% of US economy • Often >50% of delivered IM cost • Bulk versus value • Place value • Value added • Quality retention or “do no harm” • Efficiency, luck, and risk

Transport Often exceeds 50% of delivered cost (highest except food)

Industrial Minerals Mine Shipping $ End % of As $ per short ton $ $ User del $ Construction aggregates 4–7 2–6 6-13 27-52 Industrial glass/foundry sand 7–12 6–10 13-22 39-51 frac sand 15–12 25–40 40-52 65-75 Cement domestic 40–50 8–14 48-64 15-24 imported 26–30 8–14 34-44 22-33 Pumice (import) 10–15 9–12 19-27 42-49 Coal 19–28 10–17 29-45 30-42 Gypsum 5–10 10–15 15-25 57-67 Feldspar (ground) 40–50 40–60 80-110 47-57 Lime 35–50 15–25 50-75 26-37 Kaolin (slurry) 30–45 20–35 50-80 45-48

GEOLOGY existence

Development

⇓ TRANSPORTATION

⇓ Production profit

MARKET

7 R’s of Transport 4 P’s of Marketing Right product Product Right quantity Right condition Right place Place Right time Right customer Right cost Price Promotion Service

TRANSPORTATION AS MARKETING

“THE MARKETING CONCEPT” • Focus all activities towards total customer

management and satisfaction • Make products consumers want vs making

consumers want a product • Transportation can ⇑ customer satisfaction • Industrial marketing better for IMs than

consumer marketing approach • Industrial marketing focuses on customer

satisfaction

IM TRANSPORT COST FACTORS

IM volume & processing Wet or dry; bulk or packaged Transport distance Availability, schedule & transit time Equipment & support facilities

…more factors

Distribution, terminal, & port facilities Support services or lack thereof Ex-Im tariffs, bonding & customs Governmental & environmental regs. Cultural or regional differences Insurance & risk-avoidance

TRANSPORT RISK

Truck Lower Risk Rail ⇓ Barge ⇓ ⇓ Ship Higher Risk

TRUCK TRANSPORT

• Unlimited year-round movement • Load & unload quickly • Operate independently with small crew • Flexible

– Small lots & variable sizes – infrequent shipment

• Very expensive; 10–25¢ per ton-mile

TRUCKING 2

• Transports about 60% of US cargo • Highest cost per ton mile • Very flexible • Rates fixed (common carrier) or negotiation • States set common or contract carrier • Common carrier serves all = highly regulated • Contract carrier negotiates with each customer

• separate, confidential contract rates • based on many economic and competitive factors

RAIL TRANSPORT

• Slow; limited to track • Inflexible • Expensive, 2–4¢ per ton-mile • Time, volume, distance interaction • Railcars/service often unavailable • Railroads often difficult to deal with

Rail 2 • Subsidized or nationalized except in U.S. • Haul about 25% of freight • Railroads restrict interchange points & reciprocal switching

agreements with other railroads • Today most material moves under commodity, scale, or

contract rates held confidential for competitive advantage • Hauls from producer to user over a single railroad are

cheaper than joint-line movement – profits are shared – some expenses duplicated

Railcar service • Mingle car--100 t or less, very slow, high rates • Multiple car—1200 t or more, slow, moderate rates • Trainload--4000 t or more, cars loaded and unloaded together, fast, low

rates • Unit train--contract tons per time in set number of cars, continuous

turnaround service, very fast, lowest rates • Some railcar types used by IM producers are:

– hopper – rapid discharge – gondola – covered – pressure differential – and special service

Railroad Cost Factors • Loading time • Volume moved • Distance • Unloading time • Rail equipment • Rail equipment owner • Competing transport • Competing rates • Value of service

BARGE TRANSPORT

• Slow • Inflexible

– needs river, canal or waterway and locks – oriented to large bulk cargoes

• Limited access; grain season (Aug.–Nov.) • Inexpensive; 0.75–1¢ per ton-mile

Barge 2 • Relatively unregulated rates; private contracts • Contracts negotiated via market forces • Inland waterways carry 12% of US freight for 2% of US

freight billings • Inland waterway is about 23,200 km of which the lower 400

km are accessible to ocean-going vessels • Coastal seaways (Gulf Intracoastal Waterway from Texas to

Florida is also important • The Rhine, and its feeder ports on the North Sea (Rotterdam,

Antwerp, Amsterdam), connect via canal to the Danube and the Black Sea

SHIP TRANSPORT • Slow • Needs extensive infrastructure • Very inflexible

– not now geared to IM cargoes – not usually a factor inland

• Seasonal (grain, iron, coal, fertilizer; E↔W) • Very inexpensive; 0.1–0.15¢ per ton mile

TYPE GROSS DWT

DESCRIPTION

CAPESIZE 100,000– 200,000+

Too big for Panama Canal; transits Cape of Good Hope or Cape Horn

PANAMAX 60,000–80,000

Maximum to transit Panama Canal; 32.2 m beam and 275m length

HANDYMAX 40,000–52,000

Inexact term

HANDYSIZE 20,000–35,000

Inexact term

SHIP TYPES AND SIZES

SHIPPING CONTRACT RISK

Through Rate Lower Risk Liner ⇓ Trip Time or Voyage Charter ⇓ ⇓ Contract of Affreightment ⇓ ⇓ ⇓ Time Charter ⇓ ⇓ ⇓ ⇓ Bare Boat Higher Risk

…more risks

• Accidents • Weather (time to avoid) • Breakdowns • Stowage errors • Port problems (either end of voyage) • Political problems

Shipping • Tramp

– Voyage: single voyage, rates from spot market – Contract of affreightment: lift specific tonnage over several voyages for a set period

– Time: voyages for a specified time under direction of charterer who

bears most costs except wages, victuals, and insurance as "disponent owner" – Bare boat: charterer takes vessel for specified time, staffing and

operating it without restriction • Liner (schedule with conference) • Coastal or coaster • Short sea • Long sea

Shipping, cont. • Underutilized in past by industrial minerals • Big 3+ = wheat, iron ore, coal, (fertilizer) • Brokers critical; history of ship helpful to limit

contamination and other problems • Bulk shipping

– Unregulated – Cyclical – Fixtures by negotiation

Shipping, even more

• Control over commodity transport greatest if shipping FOB load port and fixing a vessel – Leaves control in hands of IM producer – Ensures vessel type, contamination level, ship-owner reliability, on-time arrival – Flexibility to respond to the freight market

• Charter on a delivered basis – Cost and freight, or C&F – Leaves control in the hands of the ship-owner – Causes some uncertainty and lowers flexibility

Shipping Brokers

• Cable, cargo, and ship brokers lessen risk – canvass the shipping market, – evaluate freight offers and services, – provide relatively unbiased opinions

• Worldwide shipping market – cyclical – dominated by supply and demand – operates 24/7

• Correct choice of discharge port is critical – based on distance to customer and transport available – shortest distance is not always the cheapest

TRENDS

⇑ Deregulation & integration ⇑ Marketing & transport distance ⇑ Just in time delivery; mostly by truck ⇑ Use of brokers, traders, trade groups ⇑ Distribution centers ⇑ Bulk or container terminals

…more trends

⇑ Use of rail & water transport ⇑ Large ships serving fewer ports ⇑ Use of containers on inland waterways ⇑ Importance of transport managers ⇑ Internet information & commerce

TRUCK RAIL BARGE SHIP US cents/ton-mile 10-25 (high) 2-4 (moderate) 0.75-1 (low) 0.1 (very low) Rates & Regulation

Negotiated (→ regulated)

Negotiated (→ regulated)

Negotiated (↓ regulated)

Negotiated (~ free market)

Flexibility Very high Moderate Low Very Low 25 t 100 t 1200 t (15-40) 60,000 dwt Capacity US

(Typical) Europe Varies Varies 1500 t (4-6) 150,000 dwt Subsidy type Roadway Track Locks Ports Containers Yes Yes Yes Yes Negotiations (Mostly confidential)

Easy; often via regional dispatcher

Hard; RR often not very responsive

Easier with broker, harder without

Less hard with broker, very hard without

SUMMARY OF TRANSPORTATION TYPES

North American Perlite A transport example

• Greek imports to East Coast of USA • Trans-loading from ship to railcars • Market focus reversal to West Coast • Containers to Pacific Rim • Also Gulf access (Mobile; Houston) • Panama Canal, Cape Horn

ASSIGNMENT Sustainable development

• Barker, J. M., and McLemore, V. T., 2005, Sustainable development

and Industrial minerals: Mining Engineering, December, p. 48-52, http://geoinfo.nmt.edu/staff/mclemore/documents/sustdevIM.pdf

• McLemore, V. T., and Dennis Turner, D., 2006, Sustainable development and exploration: Mining Engineering, February, p. 56-61, http://geoinfo.nmt.edu/staff/mclemore/documents/sustdev.pdf

• A GUIDE TO LEADING PRACTICE SUSTAINABLE DEVELOPMENT IN MINING, https://industry.gov.au/resource/Documents/LPSDP/guideLPSD.pdf

• Industrial Minerals and Rocks in the 21st Century, http://www.ehu.eus/sem/seminario_pdf/SEMINARIO_SEM_2_287.pdf