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

1. Opportunities for Juniors in Aggregate
Tuesday April 23, 2013, 4:15am PDT
By Dave Forest - Exclusive to Resource Investing News
Aggregate mining is not a glamorous business, but it’s worth a
lot of money.
Aggregate production — mining of
ordinary stone for construction —
fetched nearly $17 billion in the United
States in 2012, according to the
US Geological Survey.
To put that into perspective, the
copper industry in America was worth
only $9 billion during the same year.
And even though the US is a top gold
producer — putting out $12.6 billion
worth of bullion in 2012 — that output
wasn’t close to beating aggregate.
Not only is aggregate a big business, but it’s also on the rise. While
demand for many mined products has stalled, the need for sand and
gravel is surging for the first time since the financial crisis in 2008.
That signals that the industry may be an unexpected moneymaker in
an 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 in
the sector?
Breakin’ rocks
The world uses two major types of aggregate.
Crushed stone is cut from quarries and then pulverized into

2. workable-sized pieces. The lion’s share is used for road
construction, but some crushed stone also goes into cement and
lime manufacturing.
The traded value of this road crush: $11 billion in 2012 for the US.
The other big aggregate product is sand and gravel — natural
deposits of small rock pieces that can be used with little or no
processing.
Construction is again the big driver for this business. Most sand and
gravel is used to make concrete or asphalt. A good chunk also goes
to building and stabilizing road bases.
American sand and gravel trade totaled $6.4 billion in 2012.
Record prices
Today’s prices for aggregates are running hot compared with
historical levels.
In 2012, estimated prices for both crushed stone and sand and
gravel hit all-time highs in the US, with a metric ton (MT) of crush
selling for $9.78, while sand and gravel went for $7.65 per MT.
The record prices came along with an unexpected rebound in
construction demand.
Following the financial crisis, US aggregate demand plummeted.
Between 2008 and 2009, crushed stone consumption dropped 20
percent, from 1.5 billion MT to 1.2 billion MT. Sand and gravel use
plunged 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, crushed
stone consumption jumped by 80 million MT, or 6.7 percent, the first
increase in consumption since 2006.
Sand and gravel consumption grew 40 million MT, or 5 percent, in
2012.

3. A changing business
Why are aggregate prices hitting records even as consumption —
while growing — still remains well below the salad-days levels seen
before the financial crisis?
In short: it’s getting harder and harder to open a gravel pit these
days.
With environmental and permitting regulations on mining becoming
ever more strict, there are a lot of hoops to jump through to put even
a small aggregate pit into operation. Especially because these mines
are usually located near cities, where construction demand is. Urban
dwellers 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 have
increased 35 percent between 2005 and today, the number of
mining operations across the US has stayed constant, at around
6,500.
American sand and gravel production therefore sits at 842 million MT
yearly, a hair below the 845 million MT consumed annually
throughout the nation.
For more mechanized crushed-stone operations, the lack of new
mining is even more apparent.
While new crushed-stone quarries have been opening — the number
in 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) hit
1,268 million MT in 2012. But consumption came in at 1,280 million
MT.
In fact, America actually imported a small, but significant, amount of
crushed stone during the year: about 14 million MT.
The opportunity
Growing demand, attractive prices and a tighter production
environment open up some interesting ways for enterprising

4. aggregate producers to make money.
The biggest challenge for the business is transportation: how to
move product from easier-to-permit pits in less-populated locales to
high-value construction markets in big urban centers.
Rail — a common solution for moving commodities like base metal
concentrates — generally doesn’t cut it for less concentrated
aggregate products. Only 1 percent of aggregate sold in the US is
moved to market by train.
A more viable solution is marine transport. Producers in the
Bahamas use this method to ship a few million MT of stone, sand
and gravel to US markets each year.
On the same note, Polaris Minerals (TSX:PLS), operator of the Orca
quarry and a major shareholder in the Eagle Rock quarry project,
both of which are situated on the coast of Vancouver Island, ships its
product to major coastal markets in BC, California and Hawaii. It
plans to extend its reach through the active development of further
port receiving terminals.
Similar opportunities exist for companies with deposits near shipping
channels. Highbank Resources (TSXV:HBK) is eyeing this approach
to access sand, gravel and hard-rock aggregate resources at its
Swamp Point project, which sits on tidewater near Stewart, British
Columbia.
While shipping could be an option, the company may not end up
having to send its aggregate far from home. With the development of
large, liquefied natural gas projects planned for the nearby Prince
Rupert area, there may be significant local demand for building
materials.
That represents another potential strategy for aggregate developers:
build mines in industrial areas, close to demand and far from
objecting homeowners.
Sand and gravel producer Athabasca Minerals (TSXV:ABM) has gone
this route. The company operates pits in the midst of the Alberta oil
sands, a major demand center.

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 as
much 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 interest
in any company mentioned in this article.