NioCorp (CVE:NB) (OTCQX:NIOBF) distinguishes itself from other mining developers in that it is already far advanced in its 2015 game plan, which will transition the company to the financing stage of its flagship niobium project.
It is coming off a banner 2014, which saw NioCorp’s stock surge 400 percent after undertaking a three-phase development drilling program and completing work required to finish off a feasibility report, which is due out in the second quarter this year.
In the final December weeks, the company announced a significant offtake agreement with ThyssenKrupp Metallurgical Products for the purchase of about 3,750 metric tons, or roughly 50 percent of the company’s planned ferro-niobium production from its Elk Creek project.
“ThyssenKrupp is a household name in the steel industry, and a company of our size entering an offtake with a company that large expresses confidence in our resource, metallurgy and in our people,” says chief executive officer Mark Smith, who was the previous CEO at rare earths giant Molycorp, and joined NioCorp in 2013 to help lead the company’s transformation.
The deal is long-term, for an initial 10 years, with an option to extend beyond this time frame, and also includes a warrant for ThyssenKrupp to acquire 8.57 million common shares of NioCorp for proceeds of US$5 million.
“I’ve known [ThyssenKrupp] for 20 years, and this is the first time I’m aware of that they have entered into this type of strategic investment agreement along with an offtake agreement.”
Germany-based ThyssenKrupp is one of the world’s leading commodity trading companies, so the agreement says a great deal about Elk Creek’s potential. The property, which is located in Nebraska, is the highest grade undeveloped niobium deposit in North America, and was discovered by Molycorp in the late 1960s.
Smith says that just by virtue of having entered into this agreement with ThyssenKrupp, doors have been opened for the company for a guaranteed loan program from the German government.
“This will go a long way to helping us secure debt financing that we will look for late in 2015,” asserts the chief executive. “The whole thing sends a strong signal that someone else out there besides me thinks there is real potential for the project to become the fourth producing niobium asset in the world.”
The offtake is obviously conditional on NioCorp obtaining project financing and all necessary approvals to construct a mine at Elk Creek. This shouldn’t be a problem though, as the company is already well on its way.
Aside from approaching the release of its feasibility study, the promise of a high grade niobium supply in North America has already managed to secure NioCorp confidentiality agreements with top investment banks Morgan Stanley and Credit Suisse.
“These are the best investment bankers possible to secure debt and equity financing for this project. We are thrilled to have them on our side, and there is a high level of trust between all of us,” says Smith.
Indeed, the preliminary arrangement puts NioCorp in a leading position as the bankers are able to conduct their due diligence on the project while the company is busy finishing up the feasibility study. Typically, a feasibility study has to be completed before companies can even sit down to have preliminary discussions with banks, only then beginning a due diligence process which can last up to nine months.
“Once [the feasibility study is] complete, there should be zero delay between this and entering engagement agreements with investment bankers.”
The economics, while only completed internally at NioCorp so far, give Smith and others working with him a “very high comfort level”, he says.
The ore grades at the deposit are among the top three in the world, and the recovery rates at the project promise to “reset the standard for what world class niobium recovery is going to be,” says Smith.
In fact, NioCorp was yielding recovery rates of 60 to 62 percent --- already well above the 56 to 58 percent of top niobium supplier CBMM of Brazil --- when metallurgists decided that the flow sheet can be improved even further to hike recovery rates to upwards of 67 percent.
This is precisely the reason the company decided to push back slightly the timing of its feasibility study to the second quarter, which Smith stresses does not impact the time line for financing, construction, or eventual production.
The three phase drilling program conducted at the project last year also served to demonstrate what Smith calls “multiple decades of mining potential.” “The beauty was that in all three phases of drilling, we saw the ore grades increase, as well as the tonnes of ore and tonnes of contained metal.”
In just the first phase of the drill campaign, the company unveiled results including a 448 metre interval of 0.69% niobium, including 3 metres at 3.23% niobium. In phase 3, the project yielded the highest grade assay ever at upwards of 4.5% niobium. The average grade NioCorp is looking at is 0.7% or above, says Smith, placing it solidly as the third richest niobium ore deposit in the world, behind CBMM and Anglo American, which both operate in Brazil.
There is only one other producer of niobium in the world aside from CBMM and Anglo American --- Niobec, which is owned by Iamgold and operates the only underground niobium mine, situated 200 km north of Quebec City.
“Our average grade is 50 to 75 percent higher than [Niobec’s] average grade right now,” highlights Smith. “This is an important comparison as Niobec is an underground producing asset, which our mine will be as well.”
Based on available market data, Niobec’s average cash costs are approximately $20 - $25 a kilogram, with an average market selling price of $40 to $45 a kilogram, thus driving a $20 cash margin on production. The company is generating approximately $100 million gross margin dollars a year from the facility which is producing about 5,000 tonnes of niobium annually.
“These are very good comparables, and our ore grade is significantly higher,” emphasizes Smith.
With the three phase drilling program recently wrapped up, NioCorp says it now has a much better understanding of the ore body and what it looks like underground, with an updated resource report expected toward the end of January.
The results from the extra metallurgical work are expected by May, after which the feasibility study will follow late in the second quarter. Financing is then expected to be in order by the fourth quarter of 2015, meaning NioCorp could be starting construction by the end of this year.
When asked about financing options, Smith says he has left an open agenda and will leave “no stone unturned”, examining possibilities of partnerships, capital raises, and debt. Currently, the company’s cash position is stable, having raised over $16 million over the last 12 months.
The development of the mine comes amid a solid backdrop, with a strong compound annual growth rate of 10 percent for global niobium demand from 2000 to 2010, and even more robust growth forecast in the near and longer term.
The soft, rare metal is used as an alloying agent in the production of high grade steel. Steel made with niobium is stronger, lighter in weight and corrosion resistant and is particularly attractive for applications in the automotive, structural and pipeline industries. The steady increase in demand for niobium is expected to continue as emerging markets grow and applications for high quality steel are developed.
The U.S. currently imports 100 percent of its niobium needs, and NioCorp, with its mine in Nebraska, plans to become the first US supplier, taking up about 5 to 7 percent of the global market with targeted production of 7,500 metric tonnes per year. CBMM currently produces over 85 percent of what the world consumes today.
“Every customer talks to us about how excited they are because they want more diversity of supply,” says Smith. “This is a huge role for us to fill and we are anxious to fill it.”
“The only substitute for niobium is vanadium, but you don’t get the corrosion or temperature resistance. You will need twice as much vanadium as niobium to get the same strength.”
The CEO explains that the price of niobium has to increase to as high as $56 a kilogram to make a case for substitution. The average price of the metal in 2013 was $42 a kilogram, meaning there is plenty of room for an increase.
Smith, with 33 years of industry experience, is the company’s largest shareholder, and therefore couldn’t be more aligned with NioCorp’s goal of becoming a US niobium producer.
Since the beginning of January last year, the company’s stock has risen 400 percent, which Smith says is the result of completing technical programs that were designed to bolster NioCorp’s value.
“We’re proud of that share price increase; it comes as a result of hard work,” he stresses.
Based on the progress thus far, and Smith’s experience, there is every reason to believe NioCorp’s successes will continue this year with several milestones on the docket. This even includes an upgrade to a more senior North American stock exchange as the company looks to gain access to more institutional investors.