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NioCorp Developments Ltd: THE INVESTMENT CASE

NioCorp Developments steadily de-risking giant Nebraska super-alloys project

Elk Creek is a superalloy materials project in southeast Nebraska...
NioCorp Developments steadily de-risking giant Nebraska super-alloys project
INVESTMENT OVERVIEW: NB The Big Picture
Elk Creek, not pictured, is in Nebraska

NioCorp Developments Ltd (TSE:NB) is gaining momentum with its super-alloys materials project in Nebraska - one which will really put the state on the map.

It has passed some considerable milestones that will aid its evolution to production - one is the receipt of a key federal water permit, while the other is the publication of a feasibility study.

The latter is key to getting project financing for this huge project,  broker Rodman reckoned earlier this year, and which has a 'buy' rating on the group.

The key now is financing efforts.

So what is the Elk Creek super-alloys materials project?

It is a superalloy materials project in southeast Nebraska which will produce chemical elements niobium, scandium and titanium.

Niobium is used to produce superalloys as well as high-strength, low-alloy steel, which is lighter and stronger. Scandium can be combined with aluminum to make alloys with increased strength and improved corrosion resistance.

Titanium is used in pigments in paper, paint and plastics, but also used in the aerospace and medical implant sector.

Earlier this year Mark A. Smith, an engineer and attorney, and the chief executive and chairman of NioCorp outlined how interest in lighter, more fuel efficient, and environmentally friendly products was growing due to the benefits.

These include better fuel economy, longer-lived and more corrosion resistant products, fewer environmental impacts, and healthier returns on public sector spending.

He believes society is on the cusp of a multi-decade global 'lightweighting revolution', and one that promises significant returns for those who produce or invest in it.

As an example, he says one quarter of a kilogram of niobium added to steel in a mid-sized passenger vehicle reduces the weight by about 100 kilograms, increasing fuel efficiency by 5%.

Big numbers in the feasibility study..

The projected life of mine (LOM) at Elk Creek was slated at 32 years, with gross LOM revenue put at US$17.6bn, with an operating margin of US$12.2bn.

It will produce around 143,824 tonnes of payable niobium, 3,237 tonnes of scandium trioxide (Sc2O3), and 359,128 tonnes of titanium dioxide (TiO2).

The pre-tax net present value (NPV) was put at US$2.3bn at an 8% discount rate, with an internal rate of return (IRR) of 24.3%.

The post-tax net present value (NPV) was put at US$1.7bn, with an IRR of 21.7%.

The study assumed up-front capital costs of US$705 million, pre-production capital costs of US$85 million, and contingency of US$109 million.

Averaged underlying earnings, or EBITDA, over the life of the mine are US$389.6mln, with an averaged LOM EBITDA margin of 69.5%.

After just 3.4 years of production, the project should have paid for itself.

Smith explained that Niocorp already had commitments for 75% of the project's ferroniobium over the first 10 years - 50% going to ThyssenKrupp Metallurgical Products and 25% going to CMC Cometals of New Jersey, as well as the federal major federal government permit.

"In particular, it will allow us to continue ongoing discussions with potential institutional investors in Europe and elsewhere, including with the German Government's loan guarantee program, for which the Elk Creek Project has already received in-principle eligibility," he has said.

Smith to provide financing..

On October 20 this year, it was announced that chief executive and chairman Mark Smith will provide financing to the company.

He is increasing his personal stake in the company by providing US$180,000 in financing under an existing credit facility with the company to accelerate continuing Elk Creek finance efforts.

Up to 1,200 workers are likely to be needed at the peak of construction and it will cost C$1bn to construct and bring the facility into operation.

Once in production, the facility could support as many as 466 full-time jobs,  with an average of $39mln annual payroll.

In addition to the construction jobs and full-time workers, the facility can be expected to support the creation of more than 1,000 additional jobs in Nebraska and throughout the economy, really putting the state on the map.

What the broker said...

"We think that project financing should be somewhat easier with a Feasibility Study in hand. That said, we continue to believe that the required $1 billion in initial capex for the project is by far the largest obstacle for NioCorp with respect to reaching production," said Rodman analyst Heiko F.Ihle.

"We note that the company's current partnership with ThyssenKrupp has made the project eligible for a loan guarantee from the German Government, which we believe could provide a pivotal debt component in the overall financing package for the site," he added.

The analyst also noted that Niocorp had engaged RPM Global, the international resource engineering and consulting firm, to serve as independent engineer as part of the process for obtaining debt financing for the project.

The broker repeated a 'buy' stance and $1.20 per share target, which is a long chalk from the current price of 53 cents.



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