tedro84 I see you are still confused about scandium pricing - even tho this has been explained many times on this board before...
I believe if you take time and read the reply below from Jim Sims to GM5 very closely - you should then completely understand the general concept that is applied to the way scandium products are priced.
I hope this is helpful to you.
GM5 Tuesday, 07/11/17 11:17:05 AM
Re: None
Post # of 27762
Hello all,
I am a long time share holder and I had a long and educational talk with Jim yesterday on a number of topics, I believe this written reply to one of my concerns will clear up a lot of speculation that is going on.
The pricing for the 99.9% pure Sc2O3 product we intend to make was estimated by an independent scandium market expert, Dr. Andrew Matheson, a leading authority on scandium alloys and scandium markets. Further, as an accomplished specialty alloy metallurgist who also works in conjunction the U.S. Department of Defense, Dr. Matheson is highly knowledgeable in scandium alloy development and in the specific applications that are likely to benefit most from the revolutionary advantages that Sc2O3 can deliver. Such knowledge is critical to accurately forecasting pricing. Dr. Matheson conducted a very detailed market assessment and supply/demand analysis to arrive at his pricing forecast. We had very little input into his analysis other than to disclose the product we intend to make and our production targets. The independent experts who wrote our Feasibility Study plugged in Dr. Matheson’s numbers for Sc2O3 pricing into their economic model.
Those who suggest that there is a “commodity price” for Sc2O3 clearly don’t understand that Sc2O3 is not a commodity product: it is a specialty chemical. There is a world of difference between commodities and specialty chemicals, and to speak of commodity pricing for Sc2O3 betrays a fundamental lack of understanding of specialty chemical (spec chem) products and spec chem markets. The NioCorp team has long experience in both the spec chem and commodity metals industries, so we understand these differences well.
In the spec chem industry, pricing by customer can differ dramatically for the same purity of product, such as 99.9% Sc2O3 (what we call “three nines” scandium, or 3Ns Sc2O3, for short). This is driven by a number of factors, including the following:
Different Product Specifications: the specifications for a 3Ns Sc2O3 material can be very different between customer A and B, even though both products are the same purity (99.9%). Often, this is due to the maximum allowed impurity levels that are present in the 0.1% of the product that is not Sc2O3. For example, Customer A might have a list of 5 elemental impurities that cannot exist above a certain level, typically measured in parts per million, or ppm, in their 3Ns Sc2O3. By contrast, Customer B may have a specification requirements that lists 30 or more elemental impurities that cannot be present above a certain ppm in the Sc2O3 they use. While both products are 3Ns Sc2O3, the differences between these materials can be substantial. One can be much more difficult to make than the other, as it can require more purification steps (e.g., chemical “washing” or “polishing”) to hit the product spec. It also can command very different pricing as a result.
Application-Specific Value. In a number of applications, Sc2O3 enables revolutionary performance and value to manufacturers. The use of “revolutionary” as an adjective here is appropriate; if you research the potential value and cost savings that Sc2O3 delivers to any of a number of industries (as we have done), it quickly becomes apparent that the value proposition of this specialty chemical is enormous. The pricing of our 3Ns Sc2O3 spec chem product will incorporate a portion of the added value it will deliver to our customers. If, for example, our Sc2O3 products helps a manufacturer save an estimated tens of millions of dollars per year – savings it could not achieve but for the in-spec 3Ns Sc2O3 we provide to them through our reliable supply chain – that fact will have an impact on the pricing of our material.
Supply Chain Security. Meeting a customer’s detailed product specifications can be a lengthy and difficult process, and start-up junior miners who have limited experience in producing spec chem products often learn this the hard way. Once a spec chem producer can demonstrate to a customer that it can consistently meet the customer’s spec, the customer is inclined to stay with that producer – particularly if there are limited supply alternatives, as is likely to be the case for Sc2O3. Spec chem customers tend to be “sticky” customers, which is very good for a producer that can meet a product spec. Given the cost of supply interruptions for a spec chem, a manufacturer will want to ensure the security and stability of its upstream supply chains, and this can factor into the pricing the customer is willing to pay for material produced in such supply chains.
Supply Chain Risk Mitigation. This is closely related to factor #3. Manufacturers not only want upstream suppliers that can meet their product specifications, but they also prefer those suppliers who produce materials in locales or nations that present minimal country or political risk. Materials produced in nations such as the U.S. are considered to have very low country risk as opposed to those who produce in nations with less stable political or governmental regimes. (You might want to Google recent developments in Tanzania, for example, regarding how country risk can influence the security of supply chains for products such as Ferroniobium, which we also will make at Elk Creek).
Robust Production Capacity. Another factor that can increase the market value of a specific producer’s Sc2O3 is production capacity. Independent estimates of global market demand for Sc2O3 peg that demand into the hundreds of tonnes per year. Producers with relatively larger production capacities are often seen by downstream manufacturers as more reliable suppliers, given that they have the ability to ramp production up in the event a customer’s demand grows. At present, NioCorp’s planned production capacity will be among the largest in the world. That provides us with added flexibility in negotiating pricing with customers who may wish to increase supply purchases as demand for their own products grows.
There is another issue to keep in mind with regard to spec chem markets: companies that make spec chem products rarely disclose the pricing they can command for the various chemistries they make. This is a fundamental tenant of the spec chem industry: you do not publicly disclose the price of the spec chem you make for Customer A versus the price you can command from Customer B. This is just good business practice.
That said, current pricing for higher-purity levels of Sc2O3 range $3,000 - $5,000 / kg, as has been noted by many observers. One can purchase Sc2O3 at even lower prices, but that is almost certainly for lower-grade material that probably needs additional processing, at additional cost, in order to meet a particular manufacturer’s product specifications.
All of this may help to explain why it doesn’t make sense to say that the price Sc2O3 has been set at ~$2,000/kg by junior miners who have executed non-binding letters of intent on their Sc2O3. There is no “commodity price” for 2Ns Sc2O3, or 3Ns Sc2O3, or 4Ns Sc2O3. Of course, in the wild kingdom of the internet, where anonymous voices can claim industry “expertise” without a day’s worth of experience in the spec chem manufacturing, sales, or customer service sectors, there will always be those who speak authoritatively about how these markets work, albeit inaccurately.
In short, there clearly is unmet demand for Sc2O3, and NioCorp will be well positioned once Sc2O3 production begins in Nebraska to meet some of that demand. In fact, the demand we forecast well exceeds NioCorp’s current plans for Sc2O3 production capacity, which is why we are bullish on multiple producers of Sc2O3 eventually coming online. While we are working with prospective Sc2O3 customers now, our business plan and project financing strategies do not require that an offtake agreement be in place for Sc2O3 yet. Our goals are to serve our customers’ needs while maximizing sales revenue for this revolutionary material. The sales agreements we intend to execute on Sc2O3 will be finalized when the time is right to achieve both goals.
I hope this background is helpful.
Jim Sims
VP of External Affairs
NioCorp Developments, Ltd.
+1.303.503.6203
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