Introduction to Rising Demands for Fluorspar

Jon Hykawy, Ph.D., MBA
Clean Technologies & Materials
647.426.1656
jhykawy@byroncapitalmarkets.com
Alex Watt, MBA
Associate
647.426.0474
awatt@byroncapitalmarkets.comPlease see end of this report for important disclosures
Introduction to Fluorspar
and an Acidspar Price Deck
Stone-Age Minerals into Space-Age Materials
 The Fluorspar Industry
Fluorspar, also known as fluorite, is a mineral composed primarily of
calcium fluoride (CaF2). It is generally categorized by CaF2 content as one of
metallurgical grade (60–85%), ceramic grade (85–96%) or acid grade
(97%+). Fluorspar is the dominant source for the chemical element fluorine
(F), and due to F’s extreme chemical properties, fluorine is largely
irreplaceable in its use. These uses include steel pickling, aluminum
smelting, fluoropolymers and fluorochemicals, and thus we see fluorspar
as playing a key role in driving economic growth in the future.
This industry report focuses on acidspar, and contract prices for this
commodity, because acidspar is the highest-grade form of fluorspar and
has the highest indirect use in downstream industry.
 Price Increases, Softened by New Supply
Our analysis focuses on the primary downstream uses of fluorine and
their projected growth in relation to global GDP, as well as near-term
projects that we expect to come into production.
Based on our analysis, we believe the price of acidspar will generally trend
upward with increasing demand. However, we believe that additional
supply entering the market may move prices slightly downward for the
next two years. For various reasons, spot prices for acidspar are higher
than the contract prices we have analyzed, and these price levels are
easily sufficient to maintain industry profitability.
 Acidspar Price Deck
Our analysis yields annual average contract prices for acidspar as shown in
Exhibit 1. The average annual price of acidspar through 2020 is projected
to be $441/tonne.
Exhibit 1 – Projected Supply, Latent Demand and Acidspar Price
Source: Byron Capital Markets, Roskill, USGS
As with many other commodity materials, spot prices tend to be higher
than contract prices. We do not have sufficient data to properly estimate
how much higher average spot prices may be than contract prices.
Year 2013 2014 2015 2016 2017 2018 2019 2020
Supply (Mt) 4050 4700 4770 4800 4800 4800 4800 4800
Latent Demand (Mt) 4362 4584 4823 5075 5341 5622 5919 6233
Price (US$/t) $380 $377 $357 $388 $432 $480 $530 $582
August 1, 2013
Source: CKMI Minerals
Source: Wikipedia
Source: Samuel Steel Pickling Company
Source: images-of-elements.com

Introduction to Fluorspar and Price Deck for Acidspar
Jon Hykawy, Ph.D., MBA  647.426.1656  jhykawy@byroncapitalmarkets.com
Alex Watt, MBA  647.426.0474  awatt@byroncapitalmarkets.com Page | 2
Industry Background
Fluorspar, or fluorite, is a mineral form of the chemical compound CaF2. There are three
principle grades of fluorite concentrate:
 Metallurgical grade (metspar) = 60–85% CaF2 with a fairly lenient limit on silica
content, and is used as a fluxing agent in the making of steels. In essence, the addition
of metspar lowers the melting point of steel by an appreciable amount, making steel
far less expensive to manufacture.
 Ceramic grade = 85–96% CaF2 is used to make certain glasses and ceramics. Given the
chemical stability of compounds containing F, these materials are able to withstand
high temperatures without issue, and include cookware, labware and the like.
 Acid grade (acidspar) = 97%+ CaF2, as well as a number of other criteria that depend
on the buyer, usually including fairly tight tolerances on silica content. Acidspar is so
called because it is converted to hydrofluoric acid (HF), the basic starting point for
almost all fluorochemistry. Acidspar is also the starting point for the creation of one of
the key compounds used in the smelting of aluminum, aluminum fluoride (AlF3).
Aluminum refining is a major consumer of acidspar.
Fluorspar is the main source of commercial fluorine, which is an essential element that is used
in a wide variety of mundane chemical processes. These processes include those related to
metal smelting, as well as chemical compounds that play key roles in our modern lives and are
becoming increasingly important globally.
Fluorine is the most electronegative element on the periodic table. In simple terms, chemical
compounds incorporating F have the strongest chemical bonds possible. Strong chemical
bonds take more energy and/or more time to break, so chemical compounds containing F are
innately more stable at high temperatures, when attacked by other chemicals or when
subjected to bombardment by ultraviolet light. That some chemical compounds made using
fluorine also have other, unexpected properties makes them even more interesting.
Demand Side
Our examination of fluorspar demand is primarily driven by the past downstream uses of
fluorine. By applying the categorization of Villalba et. al. (Exhibit 2) to production levels of
acidspar, we can delineate the amount of acidspar used by various segments of the fluorine
economy.

Exhibit 2 – The Fluorine Economy
Source: Villalba, Ayres, and Schroder, “Accounting for fluorine: production, use, and loss”,
Journal of Industrial Ecology (2008)
The most important end-use segments of the fluorine economy are steel pickling, aluminum
smelting, fluoropolymers and fluorochemicals. We assume that other areas, such as
production of fluorosilicic acid, petrochemical catalysts or fluorine gas will grow no faster than
global GDP. The effect of an underestimate in this regard will be minimal since these areas
represent roughly 10% of the global demand for acidspar.
Steel and Aluminum Industry Demand
The steel industry is a sizeable user of HF in so-called “pickling” lines, where steel is stripped of
any surface corrosion or contamination by an acid bath. Sensibly, the main driver of HF use in
the steel industry should be, we believe, annual production of steel. It should be noted that
metspar is often added to furnaces making steel to help lower the melting point and save
money otherwise spent on energy. However, our focus is on the higher-grade acidspar used in
pickling.
The World Steel Association recently noted that steel production grew only 1.2% in 2012, and
the organization predicts that growth will be 2.9% in 2013 and a further 3.2% in 2014, with a
long-term CAGR of 4.4% through 2020.
Chemical compounds containing F (cryolite [Na3AlF6] and aluminum fluoride [AlF3]) are used
during the production of aluminum, as they melt at much lower temperatures than aluminum
oxide (Al2O3) but also dissolve aluminum oxide and make it possible to electrolytically extract
aluminum metal, consuming much less energy than would be required otherwise. This is
usually referred to as the Hall-Héroult process. Consumption of acidspar is, we believe, most
closely related to aluminum production levels, with estimates for required cryolite ranging
between 10 kg and 23 kg/tonne of aluminum metal.

The International Aluminium Institute has published figures showing 2.8% growth in output in
2012, followed by a long-term projection of 4% thereafter, through 2020. We have built such
growth into our model in the areas of steel pickling/metal fluoride and cryolite demand.
Fluoropolymer and Fluorochemical Industry Demand
Likely the most well-known fluoropolymer is Dupont’s Teflon, a compound properly known as
polytetrafluoroethylene, or PTFE. The growth in the use of fluoropolymers is, we believe,
more rapid than the steel and aluminum usage. The use of Teflon has passed a tipping point,
with consumers in India and China now being able to afford the use of Teflon-coated (or
similar) cookware and kitchen utensils. A fluoropolymer known as polyvinylidenefluoride
(PVDF) is used in lithium batteries, as well as more broadly in the chemical and electronics
sectors. Along with PVDF, a polymer known as fluorinated ethylene propylene (FEP) is used in
the jackets of fiber optic cables. Fluoropolymers are also critical elements in certain composite
materials.
Several authors have estimated growth rates that correspond quite well to levels of more than
50% above global GDP for 2006–2011. The spotty data that exists supports this conjecture.
We assume a conservative growth level for this use of 150% of global GDP moving forward.
The most interesting growth area to us involves the various fluorochemicals, such as the
refrigerants, including chlorofluorocarbons (CFCs), hydrochlorofluorocarbons (HCFCs),
hydrofluorocarbons (HFCs) and hydrofluoroolefins (HFOs). This is most interesting because of
the reduction of chlorine (Cl) in these chemicals due to the Montreal Protocol and a desire to
reverse damage done to the ozone layer. Additionally, the ongoing development of new
refrigerants such as HFOs (with their associated much lower levels of greenhouse gas activity
compared to CFCs, HCFCs and even HFCs) is associated with an increasing use of fluorine.
Exhibit 3 indicates that HFOs use the most F per unit mass, and have no Cl content.
Exhibit 3 – Growth in Fluorine Use with Advanced Refrigerants
Source: Byron Capital Markets
As the switch continues to these more evolved chemicals, and as the use of refrigerants in
general increases with rising levels of GDP in the developing world, the need for acidspar
increases dramatically. Given the growth in consumer wealth and available energy in
developing economies such as China and India, we can foresee acidspar demand growth
through more prevalent use of refrigeration in harsher climates. Our estimates essentially
result in demand for the purposes of making fluorochemicals that grows at levels of at least
global GDP, in spite of the growing use of alternative refrigerants, based on available data
from 2004 to the present day. We conservatively extend this growth through 2020.
Demand Driver Growth Rates
Given the above demand drivers for the steel/aluminum industries and the
fluoropolymer/fluorochemical industries, we have projected the growth rates for each area of
acidspar use as shown in Exhibit 4.
Representative Chlorine (Cl) Content % Fluorine (F)
Refrigerant/Propellant (atoms per molecule) (by mass)
CFC-113 3 14%
HCFC-225cb 2 47%
HFC-152a 0 58%
HFO-1234ze 0 67%

Exhibit 4 – Growth Rates for Areas of Acidspar Use, Global GDP
Source: Byron Capital Markets, World Bank, World Steel Association, International Aluminium Institute
We can determine the historical levels of latent demand for acidspar using the historical
growth rates from Exhibit 4; this is presented in Exhibit 5.
Exhibit 5 – Acidspar Supply and Latent Demand
Source: Roskill, USGS, World Bank, Byron Capital Markets
Using the correlations between the variables shown in Exhibit 5 and the historical acidspar
pricing, we find that acidspar pricing is most strongly dependent upon previous latent demand
(within our variables of consideration). In other words, it appears that acidspar pricing is
driven, to a large measure, by the robustness of the market one year prior, an effect likely
related to the use of contract prices. Accordingly, we can derive a single-variable linear model
for acidspar price, with a correlation coefficient to data from 2003 through 2010.
Supply Side
Switching over to an examination of the supply side, we use historical production data from
the U.S. Geological Survey, as well as additional supply that we expect to enter the market in
the years ahead.
Historical
2004 2005 2006 2007 2008 2009 2010 2011 2012
Steel Production Growth 9.4% 8.0% 8.9% 7.8% -0.4% -7.9% 7.5% 6.2% 1.2%
Aluminum Production Growth 6.7% 6.9% 6.4% 12.4% 3.6% -6.3% 11.3% 6.9% 2.8%
Refrigerants 4.0% 3.5% 4.0% 4.0% 1.3% -2.2% 4.3% 2.7% 3.0%
Fluoropolymers 6.0% 5.3% 6.0% 5.9% 2.0% -3.3% 6.5% 4.1% 4.5%
Fluorosilicic Acid 4.0% 3.5% 4.0% 4.0% 1.3% -2.2% 4.3% 2.7% 3.0%
Catalysts 4.0% 3.5% 4.0% 4.0% 1.3% -2.2% 4.3% 2.7% 3.0%
Fluorine Gas 4.0% 3.5% 4.0% 4.0% 1.3% -2.2% 4.3% 2.7% 3.0%
Global GDP (World Bank) 4.0% 3.5% 4.0% 4.0% 1.3% -2.2% 4.3% 2.7% 3.0%
Projected
2013 2014 2015 2016 2017 2018 2019 2020
Steel Production Growth 2.9% 3.2% 4.4% 4.4% 4.4% 4.4% 4.4% 4.4%
Aluminum Production Growth 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
Refrigerants 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
Fluoropolymers 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5% 4.5%
Fluorosilicic Acid 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
Catalysts 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
Fluorine Gas 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
Global GDP (World Bank) 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
2003 2004 2005 2006 2007 2008 2009 2010
Acidspar Price (US$/t) $121.00 $146.00 $175.50 $181.50 $195.00 $307.00 $304.50 $246.00
Production (Mt, Roskill) 3070 3389 3513 3637 3879 4040 3297 3792
Production (Mt, USGS) 2799 2961 2869 3397 3429 3605 3087 3484
Latent Demand (Mt) 2802 2879 3068 3266 3562 3709 3441 3739
Global GDP (World Bank) n/a 3.99% 3.50% 3.99% 3.95% 1.33% -2.22% 4.34%

Going back to 1913, CAGR in fluorspar output has been roughly at the level of global GDP
growth, approximately 3.7%. Exhibit 6 presents a subset of this data from the past decade,
broken down into metspar and acidspar. While not a compelling statistical sample, it is
arguable from this data that acidspar production is rising faster than metspar production.
Exhibit 6 – Fluorspar Market, According to U.S. Geological Survey
Source: USGS, Byron Capital Markets
According to the USGS, Chinese production of fluorspar was a combined 3.3M tonnes in 2010.
Looking forward at the incumbent producers, the largest, and the one with the most clearly
stated expansion plans, is Mexichem (BMV:MEXCHEM). In 2010, Mexichem was producing
roughly 600k tonnes of acidspar annually, and announced plans in the fall of 2012 to expand
production to 1.2M tonnes of acidspar annually, through both acquisition of presently
producing mines as well as expansion. We believe that only about 400ktpa of Mexichem’s
projected 1.2Mtpa will be new production. Mexichem is widely acknowledged to have the
lowest production costs in the industry, but it also has a stated goal of producing downstream
products and not selling acidspar. How well this new capacity will be absorbed by the existing
market is thus debatable, but we will assume all the acidspar to be produced by Mexichem is
consumed. Mexichem intends to supply this 400ktpa of new production starting in 2014.
2003 2004 2005 2006 2007 2008 2009 2010
Metspar Acidspar Metspar Acidspar Metspar Acidspar Metspar Acidspar Metspar Acidspar Metspar Acidspar Metspar Acidspar Metspar Acidspar
Argentina 5,422 - 6,891 - 6,962 - 8,278 - 9,735 - 15,098 - 13,424 - 14,000 -
Brazil 21,884 34,462 16,824 40,948 24,469 42,043 22,231 41,373 20,657 44,869 18,209 45,032 15,161 28,803 19,500 44,600
China 1,350,000 1,300,000 1,400,000 1,300,000 1,400,000 1,300,000 1,300,000 1,800,000 1,350,000 1,850,000 1,350,000 1,900,000 1,300,000 1,600,000 1,400,000 1,900,000
Egypt 500 - 500 - 500 - 550 - 11,558 - 9,115 - 4,343 - 5,000 -
France 10,000 79,000 10,000 80,000 10,000 80,000 5,000 35,000 - - - - - - - -
Germany - 33,289 - 33,203 - 35,364 - 53,009 - 54,359 - 48,519 - 49,962 - 50,000
India 6,300 4,200 6,400 4,300 6,500 4,400 5,800 500 5,000 1,000 5,500 1,500 5,600 1,600 5,800 1,800
Iran 47,730 - 54,052 - 54,000 - 65,000 - 68,192 - 65,000 - 65,000 - 65,000 -
Italy - 26,387 - 17,915 - 15,000 - 8,000 - - - - - - - -
Kazakhstan 3,500 - 4,000 - 4,750 - 30,000 - 64,000 - 66,300 - 67,000 - 67,000 -
Kenya - 95,278 - 108,000 - 97,261 - 83,428 - 82,000 - 98,428 - 15,667 - 44,500
Kyrgyzstan 3,973 - 4,000 - 4,000 - 4,000 - 4,000 - 4,000 - 4,000 - 4,000 -
Mexico 347,136 409,122 440,945 401,753 550,882 324,568 470,000 466,000 420,000 513,000 465,964 591,955 405,264 640,676 430,000 640,000
Mongolia 155,000 120,000 206,700 148,200 233,400 134,100 239,400 108,300 245,000 109,900 219,100 115,700 344,200 115,300 300,000 120,000
Morocco - 81,225 - 112,100 - 95,000 - 94,254 - 78,900 - 60,700 - 75,000 - 75,000
Namibia - 79,349 - 104,785 - 115,886 - 121,700 - 109,300 - 108,800 - 73,580 - 95,092
Pakistan 1,000 - 1,026 - 1,040 - 2,839 - 2,082 - 1,700 - 1,400 - 1,500 -
Romania 15,000 - 15,000 - 15,000 - 15,000 - 15,000 - 15,000 - 15,000 - 15,000 -
Russia 40,000 130,000 52,000 174,400 56,000 189,500 50,000 160,000 40,000 140,000 80,000 189,000 80,000 160,000 70,000 180,000
South Africa 14,000 221,000 15,000 250,000 14,000 252,000 16,000 240,000 17,000 268,000 18,000 281,000 8,000 196,000 10,000 190,000
Spain 10,503 129,195 10,000 135,505 10,000 133,495 17,241 135,864 19,437 132,760 21,436 127,300 10,598 111,810 11,700 123,300
Tajikistan 9,000 - 9,000 - 9,000 - 8,500 - 8,500 - 8,500 - 8,500 - 8,500 -
Thailand 2,180 - 2,375 - 295 - 3,240 - 1,820 - 29,529 - 120,340 - 100,000 -
Turkey 718 - 880 - 800 - - - - - - - - - - -
UK - 56,000 - 50,080 - 50,000 - 49,676 - 44,936 - 36,801 - 18,536 - 20,000
Totals 2,043,846 2,798,507 2,255,593 2,961,189 2,401,598 2,868,617 2,263,079 3,397,104 2,301,981 3,429,024 2,392,451 3,604,735 2,467,830 3,086,934 2,527,000 3,484,292
Combined Total 4,842,353 5,216,782 5,270,215 5,660,183 5,731,005 5,997,186 5,554,764 6,011,292

Pricing and Conclusion
Barring a near-term economic collapse, or a serious situation developing within either global
steel or aluminum industries, we see no reason for acidspar prices to fall back to the price
levels seen during the global financial crisis. Historical and projected prices for acidspar are
shown in Exhibit 7.
Exhibit 7 – Average Acidspar Contract Pricing
Source: Byron Capital Markets, Roskill, Huxtable Associate, USGS
The average annual price of acidspar through 2020 is forecast to generally trend upward with
demand, with a medium-term softening as a result of, primarily, additional supply from
Mexichem. Overall, $441/tonne is the projected average annual price through 2020. Naturally,
this assumes the entry to the market of at least four new producers, in addition to
Mexichem’s upgraded output. We fully expect additional producers to be attracted by those
increasing prices in 2016 and beyond, but we also fully expect the market to remain robust
and profitable.
Historical
2003 2004 2005 2006 2007 2008 2009 2010
Supply (Mt) 2799 2961 2869 3397 3429 3605 3087 3484
Latent Demand (Mt) 2802 2879 3068 3266 3562 3709 3441 3739
Price (US$/t) $121 $146 $176 $182 $195 $307 $305 $246
Expected / Forecast
2011e 2012e 2013f 2014f 2015f 2016f 2017f 2018f 2019f 2020f
Supply (Mt) 3650 3700 4050 4700 4770 4800 4800 4800 4800 4800
Latent Demand (Mt) 3976 4162 4362 4584 4823 5075 5341 5622 5919 6233
Price (US$/t) $310 $352 $380 $377 $357 $388 $432 $480 $530 $582

IMPORTANT DISCLOSURES
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Introduction to Rising Demands for Fluorspar

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