Tantalum

[sumisu]

Tantalum Revealed: What We Should Know

By Sam Kiri

20 Mar 2008 at 12:30 PM GMT-04:00

http://www.resourceinvestor.com/pebble.asp?relid=41343

While precious metal and base metal stocks continue to be the focus of investors, speciality metals such as tantalum offer equally attractive investment opportunities. Though they may be less glamorous, savvy mining investors have always remained loyal to companies with exposure to them. Despite the important role they play in the high-tech world and in our everyday life, tantalum seems to have remained under the radar of many investors.

Tantalum is a rare metal used in the production of electronics capacitors which find their way into cell phones, DVD players, personal computers, digital cameras, gaming platforms, LCD monitors and wireless devices. In other words, tantalum keeps us entertained, productive and connected. Tantalum is also used to make super alloys for jet engines, turbines, space vehicles, nuclear reactors, power plants and cutting tools. Its high strength, high ductility, high reliability, high corrosion resistance and high thermal conductivity support the diversity of applications.

Consequently, the demand for tantalum raw material has been on the rise but the inventories in the supply chain currently are low. The US Geological Survey (USGS) and the Tantalum-Niobium International Study Centre (TIC) predict the annual demand growth for tantalum to be 7% over the next 20 years. In other words from an estimated 6 million lb. world consumption in 2007, tantalum is expected to record a four-fold consumption increase in 20 years! To meet the future demand, the market will require additional production from new projects as well as expansions from existing operations.


The Tantalum Market

Tantalum supply comes from primary sources such as mining operations, as well as secondary sources such as recycled material, processor inventories, tin slags from old dumps containing low percentage material and the United States’ Defence Logistics Agency (USDLA) stockpile.

Much of the tantalum from primary sources reportedly comes from Australia with Africa, Brazil, Asia and Canada accounting for the remainder. Primary and secondary sources account for 70% and 30% of the tantalum supply respectively. A large majority of the primary raw materials derives from one source; Talison Minerals’ Wodgina mine in Western Australia. Several other smaller mines are found in Central Africa, Brazil, China and Canada.

There are two notable developments in the supply chain for tantalum raw materials. The USDLA stockpile, whose contribution to the supply side of the market over the past five years should not be understated, has heavily depleted its stockpiled inventory. The removal of this stockpile from the supply equation leaves a large gap in the tantalum raw materials market. Consequently, this gap has been filled by raw materials processors and manufacturers drawing down their inventories. These two developments should lead to strengthened tantalum prices as new material is required for future demands.


Tantalum Price

Unlike other metals, tantalum does not trade as a commodity in recognised metal markets. Consequently, tantalum trades in negotiated markets. This leaves considerable power with suppliers particularly during an up market.

While volatile politics have constrained the development of tantalum mines in Central Africa, obscure regulatory environments have restricted new mines in other African and Middle Eastern countries. The development of new tantalum projects are also facing difficulties due to strict regulations implemented by the International Atomic Energy Agency (IAEA) over the transport of the raw materials. Some potential new projects may be stalled before even graduating to a mine!


Opportunity Developing

Against this backdrop, the investment case of companies with exposure to tantalum continues to increase. None of the mining giants such as BHP Billiton and Rio Tinto have a foot in the tantalum market. With Talison Minerals and their Australian mines being the dominant supplier to the world, there is certainly room for new players. The tantalum industry is experiencing a transitional period on a number of fronts and there exists only a handful of emerging companies poised to take advantage.

Three newcomers to the industry with the potential to become leaders are Toronto listed Commerce Resources Corp. (CCE), London listed Tertiary Minerals PLC (TYM) and Australian listed Gippsland Limited (GIP). All three public companies have exploration and development stage projects and have been involved in this niche market for several years.

Commerce Resources has its assets in British Columbia, Canada and is the most active tantalum explorer. As the company is very well financed, a significant exploration and development program is currently underway at the Upper Fir deposit of its Blue River Tantalum/Niobium Project. The company has approximately 29 million tonnes of indicated and 24 million tonnes inferred resources (NI 43-101 compliant). Their flagship Upper Fir project has approximately 23 million tonnes of indicated and 13 million tonnes inferred resources. The company’s competitive advantage lies in the fact that its projects are located in Canada, an area with low political and currency risk as compared to other world supplies.

Tertiary Minerals has its Ghurayyah tantalum (-niobium and rare-earths) project in Saudi Arabia in conjunction with its Saudi joint venture partners. Following the resolution of ownership issues and raising financing, the company intends to set up a processing facility at the deposit.

Gippsland Limited has two assets in Egypt namely, the 40 million tonne Abu Dabbab and the 98 million tonne Nuweibi tantalum-tin projects located in the Central Eastern Desert of Egypt. Having completed an Environmental Impact Assessment report, the company is presently negotiating project financing to advance the Abu Dabbab project.

Rising demand for tantalum will provide existing companies with defined resources a distinct advantage. Interestingly, there are very few pure tantalum players. Troubles with the once-dominant Australian listed Sons of Gwalia have created an opportunity for emerging tantalum companies like these. The next two years will be exciting times as the emerging fresh faces vie for a place amongst the established suppliers.


Sources & Acknowledgements:

US Geological Survey (USGS), Tantalum-Niobium International Study Centre (TIC), US Defence National Stockpile Centre (DNSC), Comprehensive Strategic Analysis of the Tantalum Industry by Joel Jeangrand


Editor’s Note:

Sam Kiri is a CFA Charter Holder and a qualified Management Accountant (ACMA) with over 10 years of capital markets and asset management experience in North America, England and the Pacific Rim, with primary focus on Resources and Oil & Gas sectors. Sam is a director of Proactive Investors North America Inc., a financial media forum focused on small to mid cap companies. He is also involved in listing North American companies on the London Alternative Investments Market (AIM). Sam can be reached at [e-mail]. For more information visit www.proactiveinvestors.com