Tuesday, May 17, 2016

Niobium: Grey by Any Other Name

Investors need to expand their vocabulary with a new word  -  niobium.  Previously called columbium, it is a soft, grey metal that looks suspiciously like a string of other metals on the periodic table.  It looks particularly like a ‘soft, grey metal’ called tantalum, which is how it got its name.  Niobe is the daughter of the character in Greek mythology, Tantalus.  Niobium was recently featured in a report by a popular financial network and companies with niobium interests are finding welcome at investment conferences.
Why has this little known element got the attention of the financial press and investment bankers?  We look here at applications for niobium and the companies bringing it to market.  

Niobium is growing in popularity for metal alloys.  The steel making industry uses it to brew up super-alloy steel that is superior in strength without the extra weight that added steel would require for the same performance.  These super-alloys are favorites for end products such pipe for gas transport or structural steel for bridges and buildings.   
The temperature stability of the niobium also makes it attractive for use with nickel or cobalt alloys in engines for rocket or jets.  If titanium and tin are mixed in with the niobium, the result is a corrosion-resistant superconducting alloy that can be used in MRI scanners and other electronics.  Niobium could even end up around your wrist or in jingling in your pocket.  The metal has low toxicity and can be colored, so it is used in jewelry and numismatics. 
Niobium’s value in creating high performance metal alloys has landed it on the list of strategic metals that make up the National Defense Stockpile.  It is perhaps the potential to reduce weight in transport vehicles or defense equipment that is most attractive from a strategic standpoint.  Fuel efficiency could be increased significantly with reduced weight in jets and spacecraft.  That would save on fuel costs as well as reduce environmental impact.
With the list of potential uses building, it seems reasonable to expect demand for niobium to grow.  The steel industry is bar far the largest buyer of niobium, usually in the form of ferro-niobium that has had iron and aluminum add.  Steel applications represent about 80% of the market.   The total market value was about $500 million in 2014.
Currently, niobium sells for around $40 per kilogram, which is where it has traded since about 2008.  It may seem odd that an input for steel, which is typically discussed in terms of tons, is quoted in kilograms.  However, niobium is used in precious small quantities.  The steel super-alloys contain no more than 0.1% niobium.  Higher prices for niobium are probably in our future, but not until China intensifies its usage of ferro-niobium for steel production.  While steel producers in the U.S. are using about 108 grams of ferro-niobium per ton of steel, China is uses only about 56 grams per ton.  A change in China’s steel production practices could have a dramatic impact on niobium demand and prices.
Brazil is the largest producer of niobium, delivering about a third of supplies to the world market.  Canada is the second largest source with 18%, following by Australia, 11% and Rwanda 8%.  Recycling, which has been instrumental in supplementing supplies of other metals, has been negligible for niobium.  The United States imports as much as 95% of its niobium requirements, which is an awkward situation given its berth on the strategic stockpile list.   
Niobium has numerous uses and users, but few producers.  Indeed, there are only three companies generating niobium supplies in quantity.  CBMM and AngloAmerican Plc (AAL: London or NGLOY:  OTC/PK) are two major resource suppliers in Brazil.  CBMM produces about 110,000 tons of ferro-niobium per year and recently announced plans to add capacity for another 150,000 tons by 2017.  AngloAmerican is significantly smaller with annual production near 10,000 tons per year.  The third major producer is Magris Resources’ Niobec subsidiary in Canada, which also has 8,300 tons per year capacity.
This powerful troika has not intimidated NioCorp Developments Ltd. (NB:  CVE or NIOBF:  OTC/PK).  Formerly called Quantum Rare Earth Developments, the company is working on the only known domestic niobium resource located near Elk Creek, Nebraska. It is expected to yield scandium and titanium as well as niobium. The Elk Creek resource is thought to be structurally similar to Niobec in Canada, but higher grade and larger.  The company expects to produce 7,500 tons of ferro-niobium annually as well as 23,000 tons of titanium dioxide and 12.8 tons of scandium trioxide.  A preliminary economic assessment completed in 2015 suggested the resource has a potential 36-year life and present value of $562 million net of $919 million in total capital costs and an allowance for contingencies.  
Unlike the big guys in Brazil and Canada, NioCorp has a struggle ahead to raise enough capital for its Elk Creek plans.  The company has only $2.2 million in cash on its balance sheet at the end of December 2015, which is probably needed to keep the lights on.  Over the past year, the company used $3.7 million in cash to support development work on Elk Creek.  The current bank balance should keep the company afloat through July or August 2016.
Shareholders just approved a warrant incentive program to encourage early exercise of outstanding warrants that could yield about $7.1 million in new capital.  The incentive program expires in mid-June.  If successful, the warrant exercise could provide a solid endorsement of NioCorp’s strategic plans as current shareholders might be considered more knowledgeable than most in its merits.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

No comments: