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.
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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.
