Niobium - The next big one

MiningNews.Net

IN A resources super-cycle, it is only right and proper that some of the less well known commodities, generically known as specialty or minor metals, also get their 15 minutes of fame. This week Strictly Boardroom opens the floor to Globe Metals & Mining managing director Mark Sumich*, who puts the investment case for niobium – and digs up a few lesser-known facts.

Element number 41 on the Periodic Table, niobium, is sometimes referred to as columbium (by Americans: think metric versus imperial), a reference to the mineral columbite that niobium was originally discovered in.

Charles Hatchett, an Englishman, takes the honours for the discovery, which he made in 1801. He named the element after Niobe, who in Greek mythology was the daughter of Tantalus, a reference to the close relationship in nature of niobium with tantalum.

Strictly Boardroom’s readers are, of course, more likely to be familiar with tantalum, given that the Wodgina and Greenbushes deposits in Western Australia are two of the world’s largest known sources of tantalum (owned by Talison Minerals, acquired out of administration from Sons of Gwalia). Yet the niobium market is an order of magnitude larger than the tantalum market, with annual production of 63,000 tonnes in 2007 for niobium, compared to less than 2000t for tantalum.

This is a reasonably significant amount of niobium production, roughly equivalent to the level of annual uranium production. Yet nobody thinks of uranium being a boutique or niche industry.

Herein lies the nub of the niobium story. Although it is a minor metal, according to the textbooks, it is an increasingly important part of a major industry: the steel industry. It doesn’t get any more major than that in a resources boom.

Some 85% of all niobium is used in the steel industry as an additive to make high-strength, low-alloy (HSLA) steel products. The more sophisticated high-end of the steel market will add around 57 grams of niobium into every tonne of steel. Why? Because a couple of teaspoons of niobium into the furnace will triple the tensile strength of steel.

Other highly desirable attributes are its high temperature strength and anti-corrosive properties. It is little wonder then that consumption of niobium in steel products used for major construction projects, oil and gas pipelines and automotive components has grown at 20% per annum in the past five years. The closest metal to niobium for performance similarity is vanadium, which is largely substitutable. It is instructive at this point to unravel the demand dynamics, to understand the nature of the growth potential for the future.

Part One is the “Chindia” super-cycle story. Steel consumption is forecast to grow in China at a rate of knots for the foreseeable future. Part Two is consumption intensity. Those products that use niobium are using more of it.

The average niobium content of 57 grams per tonne of steel in 2007 was 35gpt in 2000. Part Three is a “secular shift in industry structure”. Only 10% of steel products contain niobium, and it is regarded as the high-end part of the steel market, with Western smelters producing a greater percentage of niobium steel products than the developing nations.

In time, however, this 10% figure is expected to grow substantially, driven by two related factors: firstly, the increasing sophistication of the steel industries in the high-growth developing nations and secondly, regulation.

Building, equipment and automobile performance specifications will increasingly become mandatory, rather than optional. Building earthquake tolerance specifications, for example, were substantially enhanced in Japan after the Kobe earthquake in 1995. All good, I hear you say. What shares do I load up on?

The supply side of the niobium industry is more typical of the specialty metals, in that the supply-demand factors – and hence pricing – are skewed by a few dominant players. The 800-pound gorilla in the niobium world is CBMM, the privately-owned Brazilian group that owns the Araxa mine.

With the largest niobium deposit in the world, it supplies around 75-80% of the market. That has been the historical line in the sand for the steel smelters, who won’t accept any greater market dominance, with no desire to be beholden to a single supplier (and the financial muscle to prevent it).

For investment exposure to a ferro-niobium producer (the niobium alloy sold to the steel smelters), the only option is IAMGOLD, which operates the Niobec Mine in Quebec.

This mine produced some wonderful cash flows in 2007 ($US48 million ($A50.3 million) in operating cash flow, from revenues of $US108 million), but the company is not a niobium pure-play, as it is predominantly a mid-tier gold producer.

To balance the mix from a commodity perspective, Windimurra Vanadium is a close to home, soon-to-be vanadium producer with the largest vanadium reserve in the world To explain my own strong interest in the supply-demand dynamics of niobium, let me refer you to Globe Metals & Mining, where I serve as managing director.

We recently announced the discovery of a world-scale niobium deposit in Malawi: 56 million tonnes and large along strike and depth potential for increasing the resource size. Prices for long-term ferro-niobium contracts are $US40 per kilogram, with spot prices of up to $60-70kg. Again, as with most specialty metal products, most of the product is sold under long-term off-take agreements. Niobium prices have traditionally been quite stable, but even with a recent leg-up in prices (like with most other commodities) – they remain substantially lower than vanadium. Please consider.

*Mark Sumich is the managing director of Globe Metals & Mining (the company recently changed its name from Globe Uranium). He has an honours degree in law from UWA and a MBA from the London Business School. He co-founded Globe with his brother, David Sumich (Globe Metals & Mining chairman), in June 2005. The company listed on the ASX in December 2005