The Gold Report: With development capital still at a
premium, are companies with critical metals projects getting financed? What
typically gets financed and what doesn't?
Luisa Moreno: The financing environment for the mining space is
still difficult, and that is no different for the critical metals equities.
Nowadays, the mining and related processing projects that are more likely to
get financed are those that are close to production, have relatively low
capital requirements, have competitive production costs, have offtake
agreements or will be selling into metals markets that have seen prices
stabilize and have solid demand.
TGR: In July 2011, you produced a tantalum and niobium primer for
Jacob Securities Inc. Reading through that report again, little has changed.
What makes these metals newsworthy now?
LM: Tantalum has major applications in electronics that are used in
nearly all devices that we have in our homes. Niobium is a major metal in the
production of high-performance steel. Tantalum mine production fell by more
than 50% in late-2008 and 2009 affected in part by the recession, and it
never recovered. More than 90% of the world's niobium is produced in Brazil,
and although Brazil is not considered a hostile jurisdiction for mining,
niobium was listed by the European Union as a critical metal given its
geographic risk profile. To mitigate potential risk, end users are eager to
find stable niobium supplies in stable countries. Both tantalum and niobium
are highly strategic, critical and relevant. It's important to continue to
develop new projects.
TGR: The gorilla in the niobium market is Companhia Brasileira de
Metalurgia e Mineração (CBMM). How does it affect smaller niobium players? Is
it likely to play the role of acquirer?
LM: CBMM's production accounts for more than 85% of niobium supply.
The company is the lowest-cost producer; its grades are generally above 2%
Nb2O5, whereas most other projects are at about 0.6–0.7% Nb2O5. I don't see
CBMM playing a role as an acquirer because it has over 200 years of mine life
left and its costs are the lowest. It will continue having the leading
position that it has in the market for a long time, I think. There is, as I
mentioned, a need for new players in order to attain geographic diversification
that end users would like to see.
TGR: Please provide us with an overview of the tantalum market.
LM: Tantalum witnessed a significant increase in demand in the late
1990s and into 2000. That was driven by a substantial increase in technology associated
with the dot-com boom and the proliferation of mobile devices. Prices spiked
during that period. Demand collapsed with the onset of the 2001 recession but
then gradually went up again. After the 2008–2009 recession, prices fell but
found the $140–150/kilogram ($140–150/kg) level again in 2010–2011. At the
end of 2011 and in early 2012, we saw again a slowdown in commodity prices
and demand, including many strategic metals. Currently, tantalum prices have
stabilized at about $80–90/kg. Tantalum demand obviously moves with the ebbs
and flows of the global economy, but it tends to be influenced by
developments in the technology space. Niobium has been less volatile, but
that has been sort of the pattern for some critical metals.
TGR: How do investors make money in this space?
LM: For tantalum and niobium, there are not many options. As I
mentioned, the 2008–2009 recession brought with it the closure of the Wodgina
tantalum mine in Australia and the Marropino mine in Mozambique. Those two
mines contributed more than 50% of the world's tantalum mine supply. When
those two mines closed, we saw an increase in the number of early-stage
tantalum projects. I followed a number of those projects. Today, those
projects are still in the development stage.
A mine production shortfall remains in the tantalum market aggravated by
the closure of Wodgina and Marropino. We saw an increase in mine production
from the Mibra mine in Brazil, owned by AMG Advanced Metallurgical Group N.V.
(AMVMF:OTC), from about 160,000 pounds (160,000 lb) a year to about 400,000
lb. But that did not cover all the supply that left the market in 2008–2009.
Those problems are still there.
It's the same situation with niobium projects. Many of the projects that
have niobium also have tantalum. I followed a few niobium projects in 2011,
and these projects are still being developed.
One new project in the tantalum space that has developed in the last two
years is Tantalex
Resources Corp. (TTX:CSE). To my surprise the company has actually
delivered on all it promises in a timely manner; it has achieved production
and has already delivered product to the offtaker and has been paid.
Tantalex's mine is in the Republic of Congo, but the company also has
contacts in the industrial areas of the Democratic Republic of Congo, where a
significant percentage of the world's tantalum and cobalt are produced, and
in Namibia. The company is fully certified under the Electronics Industry
Citizenship Coalition (EICC) Conflict-Free Smelter Program. Tantalex is
expanding operations, which I believe will be greatly beneficial to
shareholders.
TGR: From the few publicly traded companies that are developing
tantalum and niobium projects, what do you want to see in a development-stage
tantalum-niobium project?
LM: Brian, I appreciate the companies that are following an
unconventional mining development path by focusing strongly on reaching, in
as short a period of time as possible, production and revenues at the lowest
possible costs, by building strong management and technical teams and
establishing contacts and partnerships with end users as early as possible in
project development. Defining a resource is important as the company grows,
and the grade and the surrounding infrastructure are important too, of
course, but, ultimately, if a company doesn't have the appropriate metallurgy
program, that could become a major hurdle.
For projects that are still being developed and require some form of
hydrometallurgy, it's really about optimizing the chemical process and
achieving sustainable operating costs, thus a strong technical team matters.
Another important aspect, as I mentioned, is agreements with end users.
Tantalum and niobium are strategic materials with stable markets at the
moment, so as long as a company can produce them economically and to
end-users' specifications, there is a good chance of project success.
TGR: In metallurgy, what are the common host minerals that are most
amenable to known processing technology?
LM: The most common tantalum and niobium minerals are the
columbite-tantalite (also known as coltan) group minerals. Technically when
tantalum outweighs niobium the mineral is called tantalite; when niobium
outweighs tantalum the mineral is columbite. Another important mineral source
for tantalum is wodginite and for niobium is the pyrochlore mineral. Those
are common minerals, but ultimately it's about the ability to extract these
elements economically. Companies will use different chemical processes
depending on the type of ore and mineralogy. It's not a linear situation. It
must take into consideration the deleterious elements also. Some deposits
have high concentrations of thorium and uranium, which could be a nuisance to
separate and dispose. Recovery rates are very important, too. When there are
equal distributions of tantalum and niobium it could be complicated to
separate the tantalum from the niobium, in some cases, because their
respective chemical properties are very similar.
TGR: What are some advancing tantalum and niobium projects that you
continue to follow?
LM: In the case of niobium, there are a few projects such as the
one owned by NioCorp
Developments Ltd. (NB:TSX), i.e., the Elk Creek Carbonatite in Nebraska.
NioCorp (previously Quantum Rare Minerals) changed management and its name in
2013. Mark A. Smith, the previous CEO of Molycorp Inc. (MCP:NYSE), joined the
board in 2013 and then became CEO of the company; the idea I think is to make
NioCorp a significant source of niobium for the U.S. and allies. The NioCorp
team has completed a preliminary economic assessment (PEA), which yielded an
after-tax net present value of $532 million ($532M) and an internal rate of
return of 14%. Total initial capital costs amounted to $919M for the mine and
plants. The study accounts for the production of tantalum and scandium as
well, highly desirable elements.
Another niobium company is MDN Inc. (MDN:TSX), which owns the Crevier project in
Québec. The project has 25.4 million tonnes (25.4 Mt) of Measured and
Indicated resource at 0.2% niobium pentoxide and 234 parts per million of
tantalum pentoxide. The company is working on optimizing its metallurgy and
completing a feasibility study, all contingent on financing.
Commerce
Resources Corp. (CCE:TSX.V; D7H:FSE; CMRZF:OTCQX) is the owner of the Blue
River tantalum-niobium project in British Columbia.
All of these projects are noteworthy.
TGR: NioCorp's Mark Smith raised a lot of money for Molycorp. What
does it mean for a small company like NioCorp to have someone like that at
the helm?
LM: If you look at where the stock price was when Mark Smith took
over the company versus where it is now, it's a significant difference.
NioCorp has been able to raise funds on relatively good terms, given the
market conditions, and advance Elk Creek. I believe Mark Smith has made a
positive contribution to the project. He was the CEO of Molycorp when the
company raised billions of dollars and has been an important U.S. voice for
critical metals. He seems to have made a smooth transition into the niobium
space, where he has had experience previously. His support seems to have
driven the stock higher. The PEA results may have affected the stock but
Mark's team seems to be committed to the project.
TGR: Commerce, as you suggested, has the Blue River
tantalum-niobium project that it continues to explore. It also has the Ashram
rare earth elements (REEs) project. Is this a tantalum play now or is this an
REE play?
LM: It is probably a strategic metals play. It is advancing on both
fronts, I think. Blue River continues to be an important project for it, as
well as Ashram, the REE project in northern Québec. The company continues to
advance that project, too.
TGR: What is the next key step at the Blue River tantalum-niobium
project? Is Commerce learning about the metallurgy at Blue River?
LM: Yes, I would think so. The Commerce Resources team gets it.
From my interactions with them it is my understanding that the company is
focusing most of its resources on developing good processes for the
production of the strategic metals in its deposits and in securing
partnerships that could help advance its projects and sell the future
products.
TGR: Meanwhile, vanadium is being talked about for its use in
high-capacity storage systems. Is the emergence of the renewables sector
enough to kick start vanadium demand?
LM: It could be quite significant if we see the growth of vanadium
applications in battery storage systems. But it's not widely spread yet. A
number of companies have developed vanadium redox batteries, including
UniEnergy Technologies LLC in the U.S., Gildemeister AG in Germany and
Sumitomo Corp. (8053:TKY; SSUMF:OTCPK) in Japan. Some vanadium redox
batteries are sold commercially but they have yet to reach the mainstream. If
it really takes off, that could be significant for the vanadium space.
TGR: Is metallurgy as important with vanadium development projects?
LM: Metallurgy is generally an important aspect for many strategic
materials. It will always be important for most metal processes, but the
vanadium production process is not one that requires major new developments
such as what we are seeing in the REE and titanium dioxide space.
TGR: There are very few primary vanadium developers or producers
out there, but there are some. Are there catchy narratives?
LM: There are a few vanadium mineral projects out there owned by
public companies. For instance, Atlantic Ltd. (ATI:ASX) has had problems at
its Windimurra vanadium project. The processing plant caught on fire early
last year and that was unfortunate.
VanadiumCorp
Resource Inc. (VRB:TSX.V) owns the Lac Dore vanadium project in Quebec
and just released a new Inferred resource of 99.1 Mt at 0.43% V2O5. The
company is also investigating the possibility of producing high-purity
vanadium chemicals for the battery industry.
The most significant vanadium project at the moment is Largo Resources
Ltd.'s (LGO:TSX.V) Maracás Menchen vanadium project in Brazil, which
should achieve commercial production by Q4/15.
TGR: Is Largo expected to be a low-cost vanadium producer?
LM: Yes, its costs are relatively low at below $3/lb. Maracás has
relatively higher grades and the ore is amenable to standard processing
methods. Largo is also looking at the possibility of recovering iron and
platinum group metals as byproducts.
TGR: Are there any offtake partners?
LM: Largo has an offtake agreement with Glencore International Plc
(GLEN:LSE) for 100% of its vanadium pentoxide production for six years. It's
a sweet deal for Largo because Glencore picks up the vanadium on site, so it
doesn't have to worry about logistics, which, in any case, are excellent.
TGR: And this is now another Mark A. Smith story.
LM: Yes. He was hired a few months ago as the new Largo CEO.
Maracás is probably the strongest project that he has been involved with
including and since leaving Molycorp. Largo has since raised $75M, supported
by the long-standing shareholders of Largo, so it's well cashed at the
moment. And it has a strong technical team. Mark Smith has a real project in
his hands and a strong shareholder base. He has a high probability of
success, I think.
TGR: You also cover the titanium market, a growing market and
perhaps one of the most complex markets for investors to grasp. Please give
us the essentials.
LM: Titanium metal is used primarily in the aerospace and chemical
processing industries. Titanium metal is most useful in corrosion-resistance
applications. It has a high strength-to-weight ratio—the highest of any
metal. Titanium is as strong as some steels, but almost 50% lighter. It
should be noted, however, that only 5% of titanium is used in metal
applications; 95% is used for the manufacturing of titanium dioxide. Titanium
dioxide is most commonly used as a white pigment in a variety of
applications, including paints and coatings, which account for about 60% of
the market, and plastics, which account for 20%. The remaining applications
are paper, inks, fibers, cosmetics, etc. It's a diverse market.
TGR: Where is the growth coming from?
LM: Titanium dioxide is the most significant market for the
element, which strongly correlates with gross domestic product growth. If we
see a recovery in the world economy in the next two or three years, we should
see an increase in demand for titanium dioxide.
TGR: What do companies that are developing titanium projects need
to have to attract investment capital?
LM: There are established titanium dioxide companies with large
market caps such as DuPont (DD:NYSE), which is the largest producer in the
world. Other names include Tronox Ltd. (TROXW:OTCMKTS), Kronos Worldwide Inc.
(KRO:NYSE) and Huntsman Corp. (HUN:NYSE). Actually, we saw some consolidation
in the space recently with Huntsman acquiring Rockwood Holdings Inc.'s
(ROC:NYSE) titanium division.
TGR: What did you make of the Huntsman purchase?
LM: These companies have been struggling with costs and decreasing
margins, so consolidation was something that had been discussed for a while.
Rockwood was an easy target as the rest of the company was also for sale and
was acquired by Albemarle Corp. (ALB:NYSE), mostly for its lithium division,
I think.
TGR: Are there micro-cap titanium plays with promise?
LM: A few. You could look at it from two fronts. You have the
titanium companies that are developing titanium feedstock like the mineral
sands companies, on one side, and then you have those that are focused on
titanium ore processing technology. We have two titanium technology companies
listed in Toronto. One is Argex Titanium Inc. (RGX:TSX.V). Argex has what it calls
the CTL process, which it believes will provide lower operating costs versus
the existing sulfate and chloride processes. This is a project that was
quickly advancing to construction, but poor financing decisions have led to
project delays. Argex has a 10 kg/day pilot plant that it has been operating
but will need at least US$325M for a full-sized plant with a 50,000-tonne
capacity, but a lower capex if Argex decides to build a smaller plant first.
Another emerging company is Nevado
Resources Corp. (VDO:TSX.V). It has a completely different process that
does not use solvent extraction but rather a relatively simple
crystallization approach, and it owns an innovative acid-recycling process,
which the company believes will allow it to produce titanium dioxide at
significantly lower costs. It has proven the technology on the same scale as
Argex, essentially 10 kg/day, but it is in the process of expanding that to 1
ton per day, to further derisk the project. Nevado recently added Dr.
Krzysztof Borowiec, one of the inventors of the Rio Tinto Plc (RIO:NYSE;
RIO:ASX; RIO:LSE; RTPPF:OTCPK) QIT (Quebec Iron and Titanium division of Rio
Tinto) process, which also uses hydrochloric acid. Dr. Borowiec believes that
Nevado's technology has great potential.
The processes for both Argex and Nevado will ultimately and naturally be
fully proven once they build full-scale plants and run them for a few years
at a profit, as was the case for the existing processes. I believe that the
titanium industry, end users and producers alike, are very eager to adopt
more economic and environmentally friendly processes, and would certainly
welcome a low-cost green alternative to the existing processing methods.
TGR: Do they have offtake partners?
LM: Argex has secured offtake partners for at least 75% of its
original target production of 50,000 tons per annum. Titanium dioxide has a
well-established market; the impact of the Argex and Nevado plants will be
small relative to the total market.
TGR: You cover the REE space. As of late June, the U.S. no longer
had an REE mine after Molycorp filed for bankruptcy protection. The other
major player, Lynas Corp. (LYC:ASX), also continues to struggle. What are
some lessons for investors?
LM: Investors have realized that REEs are not that rare. But it is
important to recognize that what is really rare is an economic REE deposit.
There was a belief that companies that got to production first were going to
be the winners, but there were so many hurdles along the way. Those hurdles
ultimately caused trouble for Molycorp and Lynas because they were performing
in a space in which they had limited knowledge and it was highly volatile.
Being first is not always best and is not a guarantee of success.
Another lesson for investors is that the metallurgy of industrial minerals
deposits is perhaps the most important component in project economics. The
other important lesson is to not overvalue grade. With strategic materials,
and REEs in particular, high grade is not everything. Lynas' Mount Weld mine
runs at an average of about 7% total rare earth oxide elements (TREO) with
some super-grade zones, and Molycorp's Mountain Pass mine has grades around
8% TREO, and they're struggling. In contrast, the ion adsorption clays in
China grade less than 0.1% TREOs yet they supply nearly 100% of all the
world's heavy rare earths. Of course, the ore, processing conditions and
approach are different.
TGR: How would you convince skeptical investors that they can still
make money in the REE space?
LM: It's important for investors to remember the reasons why folks
got interested in REEs in the first place, back in 2010. It was in part
because China was restricting exports, but ultimately the incident between
China and Japan, where essentially China threatened not to sell any more REEs
to Japan over territorial disputes, led to a market frenzy for these
elements. China controlled and still controls most of the supply, close to
100% for some elements. The other reason was that we realized the importance
of REEs in the green agenda that continues to move ahead in Europe and North
America. But nothing has changed. We still don't have REE production outside
Asia and the green agenda continues to take hold. Will the West always depend
on China and the rest of Asia as a source for the most strategic rare earths
elements?
TGR: Are there any REE plays that you continue to follow?
LM: I continue to follow the space but because of limited funds
available from the markets most companies have limited cash positions and
cannot advance their projects as planned. I do, however, receive updates from
companies like Tasman Metals Ltd. (TSM:TSX.V; TAS:NYSE.MKT; TASXF:OTCPK;
T61:FSE), Frontier
Rare Earths Ltd. (FRO:TSX), Medallion
Resources Ltd. (MDL:TSX.V; MRD:FSE; MLLOF:OTCQX), Ucore Rare
Metals Inc. (UCU:TSX.V; UURAF:OTCQX) and GéoMégA
Resources Inc. (GMA:TSX.V). Ucore and GéoMégA in particular are focusing
on REE recovery technologies. As I mentioned throughout our dialogue,
metallurgy is extremely important. Many companies in the REE space probably
should have spent less money defining REE mineral resources and more on
understanding and optimizing the metallurgy.
TGR: Tell us about those technologies.
LM: I have visited the GéoMégA laboratory where the company is
working on two recovery technologies. One is for the production of a mixed
REE chemical concentrate. I am under a nondisclosure agreement, so all I can
say that I was fairly impressed with the company's approach and positive
laboratory results. There is a good chance that GéoMégA will be able to
produce an REE concentrate at relatively low costs. It has filed for patents
for that technology. GéoMégA has a second technology, an
electrofluorosis-based technology, with which it has achieved encouraging lab
results also. The company is now moving to pilot plant-scale testing.
Ucore is also investigating a different process for the recovery of rare
earths, which is known as molecular recognition technology (MRT), and was
developed by IBC Advanced Technologies Inc., a private company. MRT is
currently used to recover bismuth, antimony and other metals. It is proven on
a commercial scale, but not for the recovery of REEs. Ucore recently
announced that it is commissioning a pilot plant for the production of REEs
using MRT; lab tests were extremely encouraging. From my discussions with the
technical team of IBC, it seems that the company is usually comfortable with
only performing lab scale tests before building a full scale plant. However,
Ucore has insisted in proving the process at a larger pilot scale before
advancing to the construction of a full plant, which in my opinion is prudent
given that the REE plant may be a larger plant than the ones currently in
operation. The pilot plant results will support the future economic study.
With a successful MRT process for rare earths, there are different
business possibilities for Ucore. Ucore could potentially use tailings from
other mine and metal operations to recover REEs and/or it could still use the
Bokan Mountain deposit in Alaska, which it is still advancing. Bokan has
support from the Alaska Senate, which has committed to supporting the project
with up to about 70% of the capital costs for an REE processing plant in
Alaska, based on Ucore's preliminary economic estimates.
TGR: Would what happened with Molycorp give the Alaskan government
pause on its commitment to Ucore?
LM: On the contrary, the Alaskan government should be more
motivated because it could become the domestic source of REEs in the
U.S. Now that Molycorp may not be there anymore, I think there's more
urgency.
TGR: Thank you for your insights, Luisa.
