Gilsonite outlook

PUB(Pars Universal Bitumen)Gilsonite Company and its producer and miner of natural asphalt and processing,exporting to more than 180 countries.Because natural asphalt has a large molecular weight distribution and a high molecular weight the softening point is high compared to other types of polymers, which allows it to soften or deform as it is nears its softening point instead of completely melting into a low‐viscosity liquid. Even when Gilsonite is 20 degrees above its softening point, it is still a high‐viscosity liquid.

From the original source hard natural petroleum, Gilsonite formed with a polymer backbone that is high in functional nitrogen, which gives Gilsonite excellent adhesion and binding properties. It is a natural mineral ore that allows it to be exempt from registration under the European REACH regulations.

The only commercially viable Gilsonite deposits are located in the Kermanshah in west of Iran. The deposits form in vertical veins and families of veins throughout the deposit area. Gilsonite was formed when a unique geologic event caused tension fractures in the rock structure above an existing proto‐petroleum deposit. This allowed the precursor of Gilsonite to extrude into the cracks in a very pure form. As this material sat in the veins for millions of years, it hardened into the Gilsonite we mine today.

Gilsonite is mined by sinking a shaft into the vein with a series of drifts and slopes extending in opposite directions. Because Gilsonite is a light, friable material we mine it by hand with air‐operated jackhammers and convey the ore from the mine face to the surface with an airlift.

Since the 1950’s we have mined Gilsonite underground, therefore our production is based on the number of miners we have, as well as the number of working faces we have available to send them to. The development of a new mine is complicated, labor intensive, and it takes time; about 9‐18 months from the time we start the development of a mine until it is in production.

The main markets we sell Gilsonite into are the oilfield and printing ink industries. In the oilfield, Gilsonite is used as a fluid loss control agent and shale stabilizer for oil based drilling fluids (OBM), and water based drilling fluids (WBM). It is also used as a loss circulation material and slurry density reducer for cementing fluids.Because of the high softening point and high molecular weight distribution, when Gilsonite is added to the drilling fluid, it acts as a fluid loss control agent and shale stabilizer by partially melting or deforming. This semi‐soft material then plugs off micro‐fractures in the formation and smears the inside of the well bore to make a tight, tough filter cake.

As the drilling fluid continuously circulates, some of the Gilsonite dissolves into the fluid imparting both coating and rheological properties to the fluid. The lubrication from an increase in drilling fluid viscosity and the thin, smooth filter cake sealing off and stabilizing problem formations makes Gilsonite effective in preventing stuck pipe. The main difference between the application of Gilsonite in OBM and WBM is how Gilsonite is added to the drilling fluid system. While it can be added directly in both applications, some people add Gilsonite to a WBM system in a solution with glycol usually referred to as “liquid” Gilsonite.

In cementing fluids, Gilsonite is used as a lost circulation material (LCM) because of its plugging and binding properties. As it is a light material, it is also used as a slurry density reducer in some specialty cementing fluids.

The adhesion properties of Gilsonite are critical to the application in the printing ink industry. In black publication type printing ink, Gilsonite both disperses the carbon black and acts as a binding agent to hold the carbon black pigment to the paper. This makes for a very crisp image that does not smear or rub off in newspapers and magazines.

At PUB Gilsonite Company we understand how critical we are in many of the products our customers make and we are committed not only to meeting the market demand, but also to growing our production to meet the future demand. The ability of any mining company to meet the long‐term demand of the market is based on two things – the available mineral reserves and the ability to get those reserves into production. We are continually adding to our reserves and a recent update shows that in the proven and probable category, we have enough Gilsonite in the ground to supply at our current rate for many decades to come.

Over the last several years, PUB Gilsonite Company has been investing millions to put in new mines and adding staff to increase our production to meet the demand of the market. Beginning in 2005, we radically increased our capital expenditures to multiple times the previous years and we continued to invest heavily developing new mines through 212.

We planned for an increase in demand in 2011, but the actual increase was more than we anticipated. Despite our best efforts to expedite the completion of several mines that were in various stages of development, we were not able to increase our production to meet the demand of the market. This forced us into long lead‐times and put all of our products in allocation. Through our efforts in 2011 and continued investment in 2012, we are now producing and selling at record levels. Even at our record level of sales we have reduced our lead‐times back to a more acceptable two weeks and most of our products are no longer on allocation.

This year we have taken additional steps to increase our reliability. PUB Gilsonite Company has engaged world‐class mining consulting firms to help us with projects to more effectively operate our mines and adapting technologies to more efficiently plan our mining development. In addition, outside consulting firms are reviewing our existing operations to ensure that we continue to operate with the best health and safety practices in the industry.

As you have seen, Gilsonite is truly a unique material from how it was formed millions of years ago with a one of a kind geologic event to how we continue to mine the ore by hand today in underground mines. The unique properties of Gilsonite make it a critical material for many oilfield drilling fluid products. In OBM and WBM systems, Gilsonite is the preferred product for high temperature fluid loss control, shale stabilization, and minimization of stuck pipe. In printing inks, Gilsonite is critical for carbon dispersion as well as the excellent binding properties required for high quality printing inks. PUB Gilsonite Company is spending millions to increase our supply to meet the current level of demand of the oilfield, and we plan to continue to invest heavily to ensure a reliable supply of Gilsonite to the oilfield market now and into the future because we know how important we are to the success of our customers in the drilling industry. Today is a great day to be a customer of PUB Gilsonite Company.