1. Sales contracts - Gippsland and Noventa have contracts.
2. Low unit production costs - Gippsland is best here because of the scalability of the project
3. Diversified output - Gippsland (Ta/Sn/feldspar) and Commerce Resources (Ta/Nb) are best here
4. Production lead time - Gippsland and Commerce Resources are years away from production, which means is any market weakness these companies will suffer most. Gippsland does however have a low unit cost (1:1 strip ratio, low fuel cost) advantage.
The details for each company are:
1. Gippsland Ltd (ASX.GIP): Gippsland, listed on the Australian Stock Exchange, is developing a very large tantalum-tin-feldspar deposit in Egypt. The project is a 50-50% JV with the Egyptian government. The project is close to financial closure, though its still 2 years away from production. The project has a contract for the supply of 600,000tpa to HC Stark of Germany. See www.gippslandltd.com. This stock is weaker today (10c) I think because the 2yr development lead time surprised the market - as it surprised me. They are capitalised at $A33mil and are projected to generate $A. For a forum discussion on Gippsland - see Google Finance.
2. Noventa Limited (AIM.NVTA): They have already commissioned the mine, and production is being ramped up in 2008 to 400,000lbs per annum. The attraction of this company is that it is in production, which justifies the higher market capitalization for this company. See my Google discussion forum on this stock. See www.noventa.net and www.minesite.com/companies/comp_single/company/noventa-limited.html.
3. Commerce Resources Corp (CCE.V): This company hosts a much smaller resource at its Fir project in Canada, but the resource is open along strike. Importantly the resource contains a very high concentration of niobium. Join my discussion of this company at Google Finance. See www.commerceresources.com/s/Properties.asp?PropertyInfoID=892&View=All
As we can see from Gippsland's price comprison below, they are suggesting that Gippsland is 400 below fair market value based on their resource inventory. Unfortunately resources equals long mine life, but it doesn't automatically convert into mine revenue, so we need to consider output. In fact Gippsland is scheduled to produce 600,000 lbs per anum of tantalum, so it will produce 50% more than the others, despite the much larger resource. Gippsland does have the benefit of tin output. Tin supply is quite tight. We need to also acknowledge that the market capitalisation of Gippsland is discounted because its still a project. Nevertheless, the stock has not received a re-rating since it announced its off-take agreement with Germany's HC Stark. Clearly investors are waiting for a bank to commit to finance this project. This is too conservative. I can see upside to 18c over the Xmas period - the driver being completion of the Final Feasibility Study and bank finance commitment. I dont however see this stock continuing up because its still 2 years away from production. Investors are not that patient.
For more info on the tantalum – read www.noventa.net/pdf/presentations/tanatalumSCR_presentation.pdf. The tantalum capacitor market has been soft in recent years. Many tantalum capacitors were designed out of cell phones and computers after the tantalum capacitor shortage of 2000 caused prices to spike to over $US200/lb. Tantalum lost market share to ceramic and aluminum electrolytic capacitors. Nevertheless China remains an attractive market for tantalum since many capacitor manufacturers there weren't around for the shortages of 2000 and have since designed tantalum capacitors into their new products.
See http://www.kemet.com/kemet/web/homepage/kechome.nsf/weben/Tantalum%20Capacitors. There is very litle price info available for tantalum. The best I could do was the US Geological Survey report for 2007 - http://minerals.usgs.gov/minerals/pubs/commodity/niobium/tantamcs07.pdf which suggests tantalum prices have been flat for the last 5 years at between $US30-35/lb. Its a pretty competitive arena with alot of substitutes - niobium, ceramics, 'coltails' tailings. Thats not to say value doesnt lie in the projects or any future shortfall in capacity. It happened in 2000. Anyway you will know what to buy is a shortage develops again.
- Andrew Sheldon www.sheldonthinks.com