Intl. Beryllium acquires second metal fabricator

International Beryllium (IB-V) continues to expand in the beryllium fabrication marketplace. After signing a letter of intent in June, it has concluded a definitive agreement to acquire Franklin, Ind.-based Nonferrous Products, a beryllium metalworking and specialty alloy processing company. The combined company will have 47 employees.

This is International Beryllium’s second acquisition in the metal fabrication market, having bought Royersford, Penn.-based Freedom Alloys in May. Both acquisitions support a strategy of becoming a vertically-integrated beryllium supplier. The company envisions that its operations will eventually stretch from the mine mouth to beryllium metal and beryllium alloys, as well as semi-finished and finished beryllium product markets.

“Our business plan has been, from the get-go, vertical integration and consolidation, specifically on the downstream side,” says Anthony Dutton, International Beryllium’s CEO. “Freedom Alloys has been our first acquisition on the downstream side. Freedom pours the billets and sends them to Nonferrous Products. So Nonferrous and Freedom already have a working partnership, although they were separate companies. By acquiring Nonferrous Products, we would be doing exactly what we wanted to do, which is to consolidate companies like these.”

There is another motivation for the deal.

“Nonferrous Products also has a toehold in what we consider a key market, which is the oil and gas sector. We are going to be ready to build on their toehold into the oil and gas sector, and expand very aggressively there.” Dutton says.

And there are further synergies.

“Nonferrous sells through a distributor network, as well as directly to its clients, while Freedom is more likely to sell through distributors,” Dutton says. “One of the things we liked about Nonferrous Products is the fact that it sells directly to clients. So we are now able to leverage their client base for Freedom’s products by not having to go through the distributor network.”

Dutton identifies three market segments for beryllium products. The military segment uses beryllium metal. The commercial segment uses beryllium alloys. The third segment is the nuclear power generation sector, which uses beryllium for reactor construction, and beryllium demand from this segment is set to grow. Dutton also hopes to create demand for the metal for use in nuclear fuel fabrication, and has signed an agreement with Purdue University in West Lafayette, Ind., to fund a research project to develop a superior nuclear fuel pellet using beryllium oxide alongside uranium oxide (T.N.M., Sept. 8-14/08).

“We have built our company on the idea of the ‘nuclear renaissance’. The foundation, however, is built on the basis of the existing commercial sector business,” Dutton says. “We don’t expect that we’ll be generating revenue from the nuclear business next week or even next year, but we will be working very hard to position ourselves in that market, and once that starts to open up more to commercial companies, we’ll be ready to go.”

Nonferrous Products is a niche manufacturer of custom copper-beryllium, copper and bronze alloys. The company provides tooling components for the automotive industry, plastic mold producers, electronic component manufacturers and the oil and gas service industry. It is also an approved vendor to the US Navy and naval product fabricators and repair facilities. Other markets include welding, metal melting, and industrial equipment. In a release, Dutton cites Nonferrous Products’ technical experience and market knowledge as another rationale for the purchase.

The purchase price is about US$10.5 million, of which US$6 million is in cash, US$3 million is in vendor debt, and the rest is in International Beryllium shares, to a maximum of 3 million shares. For a part of the US$6 million cash portion of the deal, International Beryllium plans to use a US$3 million bank loan, so the cash drain on the company’s treasury will be about US$3 million. Since the company has about $6-6.5 million cash, this will leave the treasury with about US$3-3.5 million after the deal is closed. The US$3 million vendor debt bears an 8% interest and is payable in three years or earlier.

Nonferrous Products had revenues of US$11.4 million in 2007, while Freedom Alloys had revenues of US$7.3 million for the same period, or combined revenues of US$18.7 million. Since sales for both companies are growing, Dutton expects that revenues for 2008 will exceed this figure. Significant growth opportunities include the rapidly expanding export markets and the growth of plastic mold and oil and gas applications globally.

Dutton does not anticipate that the company will generate net income in the next few years, because he plans to reinvest all earnings in growth, and he wants to finance all growth from internal resources, if possible. International Beryllium is still on the acquisition trail, and is looking at other potential targets with significant beryllium operations.

While the company continues to expand downstream through acquisitions, it does not neglect the upstream side, where it is building an inventory of beryllium exploration properties. The company owns projects in the USA, Brazil and Uganda, and so far it is not mining or drilling on any. The highest priority exploration target is a project adjacent to the Spor Mountain beryllium mine in Juab Cty., Utah, operated by Brush-Wellman, a vertically-integrated beryllium subsidiary of Cleveland, Ohio-based Brush Engineered Materials (BW-N).

The Juab Cty. project holds about 31 sq. km. The adjacent Spor Mountain mine supplies about 60% of total world beryllium demand of 400 tonnes per year. International Beryllium is looking at historic data for the property, and an airborne geophysical survey would be the next step. The company is also looking at acquiring other prospective properties.

Despite envisioning a vertically-integrated company, one area that Dutton does not plan on entering is production of metal from concentrate. There are a number of companies that are already active in this area. They have sufficient capacity, and he sees no benefit from moving into this space.

Dutton believes that the market’s perception of International Beryllium is not accurate.

“We are still being viewed as a resource company, and it’s definitely holding us back,” he says. “We are not a resource company. Resource is just one part of the puzzle. I have not heard of a junior exploration company that makes money. We do make money.”

Once the Nonferrous Products deal closes, International Beryllium will have about 110 million shares outstanding, and a maximum of about 142 million shares fully diluted.