Niobium -- a specialty metal that is used mainly to produce hard and tough steel and super alloys -- has caught a fair bit of attention in the past month with China Molybdenum's $1.5-billion purchase of Anglo American's niobium and phosphate assets in Brazil.
I caught up with Mickey Fulp, the Mercenary Geologist, to get a quick take on the market -- one that is not for the faint of heart. There are few assets out there to choose from and the market is largely controlled by CBMM.
Kip Keen: Tell us about the Niobium market.
Mickey Fulp: It's a monopoly. It's gotten even more so over the past year and a half. It's controlled by CBMM -- a very rich family-operated company in Brazil. The mine's called Araxa and it's a huge open pit mine. It's essentially a weathered product in place. They don't blast or even crush it. They basically scoop the stuff up and process it. At one point they controlled 85% of the world's production.
KK: You avoid the space -- is that largely because there's so few assets to choose from in a market dominated by CBMM?
MF: That is the main reason. There just aren't that many good niobium projects. The best one hands down is Niocorp's Elk Creek Nebraska led by CEO Mark Smith, who moved over from Molycorp before it went bankrupt.
It will be a deep underground mine. It's grade is about 0.7 %. It gets better as you go deeper. Their PEA was OK.
Here's the deal, though: $1 billion CAPEX and $400m sustaining CAPEX over life of mine. That reminds me of a lot of these big rare earth projects that never made it because of the extraordinary CAPEX's required.
That PEA -- I looked at it about half a year ago -- it's legitimately done. A lot of it you can't really assess their numbers easily. But they avoid some of the obvious red flags. They did eight percent discount and after tax. The NPV was $2.3 billion and IRR was in the mid to high 20% range.
But who's going to put a billion dollars into a niobium mine? In my opinion, that would take the US government coming in and saying we want a domestic source of niobium, which I don't think will happen any time soon. They already have an “understanding” with CBMM.
KK: As far as discovery goes -- what kind of Niobium asset would grab your interest?
MF: Plus 1% open-pittable some place geographically and geopolitically friendly. But I don't think you're going to find that. People have been looking for this stuff for a long time.
Disclosure: NioCorp Developments Ltd. was a CEO.CA sponsor from December 2013 to December 2014. This is not financial advice and all investors need to do their own due diligence.