Two of the bigger mining deals in recent memory have a common denominator that might surprise a few people.
Was it gold or copper? Neither. It was niobium — a metal rarely discussed outside mining circles, and yet one that has doubled in price since 2003, and is produced at just three primary niobium mines in the world and has seen no new mines built since the late 1970s.
Not so surprisingly, these two deals were fuelled by Asian demand and money.
In April, Hong Kong and Shanghai-listed China Molybdenum plunked down US$1.5 billion in cash (about 10 times earnings before interest, taxes, depreciation and amortization (EBITDA) to get its hands on Anglo American’s (NASDAQ: AAUK) niobium assets in Brazil, along with its phosphate business.
A little over two years before this deal, Magris Resources — a private equity firm set up by Aaron Regent, the former CEO of Barrick Gold (TSX: ABX; NYSE: ABX) — paid US$500 million, or 5.6 times EBITDA, for Iamgold’s (TSX: IMG; NYSE: IAG) undergound Niobec niobium mine in Quebec.
The Niobec purchase in October 2014 was Regent’s first acquisition since he created Magris and was backed by Asian money — specifically with contributions from Singapore’s sovereign wealth fund Temasek Holdings, and Hong Kong billionaire Li Ka-shing’s Cheung Kong Holdings.
Casting further back in time, it was two Asian groups holding mainly iron and steel companies that bought a combined 30% stake in the world’s largest niobium producer, Companhia Brasileira de Metalurgia e Mineracao, or CBMM, in 2011. The privately held Brazilian group, which produces 84% of the world’s niobium, sold 15% stakes to a Japanese-Korean consortium and one from China for US$1.5 billion each.
A helicopter at the Argor niobium property in Ontario. Credit: MDN.
Asian companies are taking strategic positions to secure supply of the metal, also known as “columbium,” 90% of which is used as an alloy that improves the properties of steel. The steel produced is used in everything from oil and gas pipelines to the aerospace (jet engines) and automotive industries, as well as in structural applications.
“China is gobbling up all of the critical and strategic metals they can’t produce internally,” says Claude Dufresne, president and CEO of MDN (TSXV: MDN), which signed an agreement to acquire a niobium property in the James Bay lowlands of northern Ontario that it says could become North America’s second producer of ferro-niobium.
“There are small amounts of niobium in China but it’s mixed up in rare earths, and they are producing only 1,000 tonnes of niobium a year,” Dufresne adds, noting that world consumption of the metal is 85,000 tonnes annually.
The mining engineer notes that the market for niobium is growing, especially given China’s appetite for steel.
“China is the largest consumer of niobium, but if you consider their intensity — which is their usage divided by steel production — they are consuming one-fourth of what the U.S. is consuming, so there is definitely an increase in demand coming from Asia,” he says in a telephone interview from his office in Montreal. “There is a lot of research and development work that is being done by the steel producers to produce better steel — to make it lighter and stronger — and in most cases, niobium is used as a micro-alloy element.
“It’s a profitable business,” he adds, noting that the current price of a kilogram of niobium pentoxide (Nb2O5) ranges between US$35 and US$40, up from US$14 per kilogram in 2003.
MDN is acquiring Argor from its current owners Barrick Gold, Goldcorp (TSX: G; NYSE: GG) and private company James Bay Columbium. Barrick owns 60% of the asset; James Bay Columbium, set up in 2000 by mine-finder and Canadian Mining Hall of Famer Arthur Stollery, owns 32%; and Goldcorp owns the remaining 8%.
The sellers will receive 5 million common shares in MDN, $25,000 in cash and will keep a 2% net smelter return royalty over all minerals from the property. (The proceeds will be split between the three owners based on their percentage of ownership.)
MDN has the right to buy back 1% of the royalty for $2 million. The sellers also have back-in rights to reacquire a 51% stake in the property if MDN discovers gold — namely more than 2 million oz. gold, or 2 million equivalent oz. gold.
Argor comes with a historic resource based on 14,000 metres of drilling from the 1960s. Eighty-five holes were drilled up to 275 metres along a 730-metre strike, and resulted in a historic indicated resource estimate of 62 million tonnes grading 0.5% Nb2O5. (The niobium — in a carbonatite — comes in a mineral named “pyrochlore.” This is an oxide, so the niobium (Nb) is reported as Nb2O5, and the grade of all niobium deposits are reported as a percentage of Nb2O5.)
Dufresne notes that other work in the 1960s included an exploration shaft and extracting a 250-tonne bulk sample, which yielded a 78% recovery rate in pilot plant tests by Lakefield Research. The property acquisition comes with all the core intact and logged.
Bechtel Canada completed a feasibility study on Argor in 1969 and updated it in 1979, but the project did not meet the owner’s targeted return on investment.
MDN’s first steps, once the deal is closed, is to raise capital and sit down with the Cree First Nations. “We want to make sure they know what we’re doing and that they support us,” Dufresne says, adding that the junior will also have to raise capital, produce an internal desktop study to update estimated capex and opex, and work on converting the historic resource into a National Instrument 43-101 compliant resource.
While it’s still early, Dufresne reckons that if MDN builds a mine at Argor it would be underground, because an open pit in this part of Ontario would be expensive. He expects the company would need a concentrator at the mine site, and ship the concentrate to a location where it would be converted into ferro-niobium. Argor, just 45 km from Moosonee, is accessible by rail, although MDN would have to build a road from the project to Moosonee. The project is 120 km north of Detour Gold’s (TSX: DGC) gold mine of the same name.
It took MDN eight months to negotiate the deal, after finding the property by looking through files and at all of the carbonatite properties in northern Ontario.
“We discovered this one and we did a bit more digging and we realized it was dormant, and so we contacted the operator, which was James Bay Columbium,” he says. “When we contacted them they weren’t even aware they had the asset, because Mr. Stollery had passed away. We ended up contacting Barrick and talking with the right people, so it took a while.”
If Argor becomes a mine, the ore will be upgraded into a concentrate of 58% to 60% Nb2O5, Dufresne says. The concentrate would then be converted into ferro-niobium. (The niobium content in ferro-niobium is usually 66%.)
Dufresne joined MDN as CEO in 2014, and initially focused on the company’s Crevier niobium-tantalum project in Quebec. But the economics at the time didn’t justify spending more money on Crevier, and the company looked for other niobium projects.
Before MDN Dufresne spent over 13 years in sales, as well as marketing ferro-niobium produced by the Niobec mine.
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