Metals: When Old Meets Modern

Humans have been exploiting metals for quite some time.  Free gold objects were found in Spanish caves during the late Paleotlithic period about 40,000 BC.  By 6,000 BC humans were fashioning gold into jewelry.  Then by 4,000 BC humans had figured out how to craft implements using copper and silver.  The point is that investors have every reason to expect minerals mining and processing operations to be well seasoned.

The Skouriotissa copper mine in Cyprus is thought to be one of the oldest mines in the world, dating back as far 2,500 BC.  Currently operated by Hellenic Copper Mines Ltd., the mine has been in near continuous operations for more than a century.  Old does not necessarily mean value has been exhausted.

Oz Minerals Ltd. (OZL:  ASX) is a minority investor in Hellenic Copper Mines, providing minority investors with a ‘companion ticket’ to participate in Skouriotissa’s future.  The Australian mining company captured AU$1.0 billion in sales in the most recently reported twelve months, providing AU$138.5 million in net profits or AU$0.43 per share.  Even more interesting is the company’s generation of AU$396.2 million in operating cash flow during the same period.  Indeed, Oz is a fairly reliable generator of cash flow, giving the company the coin for opportunistic and strategic moves.

 For investors that want something flashier than copper there is the Mineral Separation Plant at Manavalakurishi.  Located in the state of Tamil Nadu in India the plant is the oldest of its kind in that country.  In operation since 1910, the plant mines and processes sand for the production of minerals that have gained popularity in modern times:  ilmenite, rutile, monazite, zircon, sillimanite, and garnet.  The site is also home to a zirconium oxide pant that chemically treats zircon used in nuclear fuel.

Manavalakurishi is owned by the Indian Rare Earths Ltd., a government-owned corporation based in Mumbai.  In 2018, Indian Rare Earth reported sales of Rupee 6.2 billion (US$86 million) providing Rupee 1.2 billion (US$17 million).  Included in the results were sales related to processing monazite ore that contains rare earths used for defense applications.  One of the company’s customers is subsidiary of Toyota Tsusho, which buys mixed rare earth chloride from the Manavalakurishi plant.   

Indian Rare Earths is in a partnership with another government-owned mining company, National Mineral Development Corp., to explore rare earth opportunities in India and around the world.  The relationships with National Mineral could be critical for the small but storied Indian Rare Earths.  National Mineral is in a separate joint venture with Hindustan Copper and Mineral Exploration Corporation to explore mining for rare earths in South America. 

Like every other country in the world India is scrambling to find alternative sources than China for these critical metals.  China, which supplies more than 90% of rare earths to the rest of the world, has intensified threats to restrict exports of rare earths.  Neodymium and dysprosium along with over a dozen other rare earths are used in a range of products including magnets used in electric motors, connections in electronic circuitry, and anode and cathode components of electric vehicle batteries. 

There is no means for minority investors to get a slice of well-seasoned the Manavalakurishi plant.  However, it is well worth watching India as the country begins to flex its mining muscles in the rare earth supply chain.  

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.