Investing Tip in Critical Metals

Why metallurgy is so important in splitting the good from the bad...

 

LUISA MORENO is managing partner and analyst with Toronto-based Tahuti Global. 

 

Covering industry metals with a major focus on technology and energy-metal companies, Moreno is a regular conference speaker, has published reports on rare earths and other critical metals, and has been quoted in newspapers and industry blogs. 

 

Here Moreno tells The Gold Report why there are many things investors must pay attention to when it comes to critical metals projects, but nothing should trump metallurgy...

 

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?

 

Luisa Moreno: 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?

 

Luisa Moreno: 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.

 

Luisa Moreno: 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 per kilogram 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: 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?

 

Luisa Moreno: 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?

 

Luisa Moreno: 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: Is metallurgy as important with vanadium development projects?

 

Luisa Moreno: 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: 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.

 

Luisa Moreno: 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?

 

Luisa Moreno: 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: How would you convince skeptical investors that they can still make money in the REE space?

 

Luisa Moreno: 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: Thank you for your insights, Luisa.